BlogIncome Tax

Property Tax Deduction: How Does It Work?

215views

One of the countless benefits of owning a home is the property tax deduction. But, you don’t have to own a house just to obtain this tax break, there are many other ways for you to qualify.

For instance, if you pay taxes on either vehicles or land, you can also qualify for the property tax deduction. All you have to do is look for your tax records, add all the things which count and keep an eye on your calendar.

When it comes to the property tax deduction, having an idea what’s deductible and not deductible is crucial, so to give you an idea here’s a list.

What is Deductible?

You may deduct real estate and property taxes you pay on the following:

  1. Boats
  2. Vehicles like cars and RVs
  3. Property that is outside the US
  4. Land
  5. Co-op apartment
  6. Primary and vacation homes.

What Is Not Deductible?

The Internal Revenue Service (IRS) however, does not permit tax deductions for:

  1. Assessment for sidewalks, building streets, or sewer or water systems in the neighborhood.
  2. Transfer taxes on the house’s sale
  3. Property taxes that you haven’t paid yet
  4. Taxes on property that do not belong to you.
  5. Expenses on loans which finance energy-saving house improvements
  6. Portions of your tax bills that are essentially for services, for example, trash or water

[note]Property Tax Deduction: How to Take It?[/note]

Look for your tax records

The local taxing authority might provide you a duplicate of the tax bill for your house. However, according to Robert Kirby, a certified public accountant in Munc CPA in California (Rohnert Park), you should also study the registering paperwork on your other movable properties like boat, car, and RV. Because you may also be paying property taxes on such assets and the part based on the vehicle’s value is possible deductible.

  • Do not include things that don’t count

In actual fact, you can only deduct property taxes if it is consistently assessed at the same rate for the same property in the community. On the other hand, the earnings should be used to help the community and not to fund the services you obtain for yourself or for special privileges.

Kirby also notes that occasionally there are valuations which are created by the region for improvements and actually those aren’t deductible since they’re not taxes. Instead, you may want to add them to your property’s price basis that might aid you when you sell, Kirby added.

  • When filing your return utilize Schedule A

This is where you figure out the deduction. Keep in mind that this means you will have to list down your taxes rather getting the standard deduction. Though listing your taxes takes more time in return you will have lower tax bills.

  • Remove the property taxes in the year you wage them

This sounds easy, but in reality, it can be very complicated. Typically, there are two ways of paying property taxes on houses. First, you can set aside money every month in an escrow account or when your bills come you can write a cheque either once or twice every year. But do not allow the first way fool you – because it only deducts the taxes you funded during the year.

  • For those who sold or bought a house this year

Renters may be eligible for property tax deductions on their state taxes. For instance, renter’s credit in California offers some people who are paying taxes a break.

If you had a taxable property for a portion of the year before retailing it, usually, you might deduct the taxes outstanding to the period you obtained the property. Thus, if you traded your property in July, you can withhold the first six months of the year’s property tax on the property, and your customer will deduct the other half.

Tips on How to Obtain Bigger Property Tax Deductions

  • Examine your closing paperwork

If you sold or bought a property particularly a house, it is highly recommended that you should go back and then check what you funded at closing for a property tax as it is very easy to oversee says Richard Smith, a registered agent in San Jose California.

Smith, on the other hand, also added that after the tax evaluator revalues your property, you may obtain a succeeding tax bill.

  • Pay your property taxes in advance

If you are paying your property taxes in advance, there is a higher chance that you will be able to obtain bigger tax deductions. For instance, if your bill is due next January and you pay it earlier than the expected time let’s say this November, you can subtract it this year rather than next year.

  • Keep your registration reports

When it is the right time to renew your vehicle’s registration, make sure to examine if any portion of the payment is property tax as there might some tax deductions hiding in there.

Source:

IRS

 

16 Comments

Leave a Response