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With Property Taxes Rising, What Can You Deduct in 2021?

Property tax is a tax levied directly on real estate or certain other property forms. The tax is imposed by local governments on properties owned within the jurisdiction, and the proceeds comprise one of the biggest income streams for local and federal governments.

Different factors determine the value of the real estate and the applicable property tax, including the market value, appraised value, assessed value, and assessment ratio. Municipalities typically adjust property tax on an annual basis based on their ever-evolving fiscal needs, or to combat inflation.

In California, property taxes are calculated by multiplying the property’s tax assessed value by the tax rate. The standard tax rate in the state is set at 1 percent, per Proposition 13. Therefore, residents pay 1 percent of their property’s value for real property taxes. California’s high property values, however, render it a relatively high-tax state even with Propositions 13 and 19.

The good news is that under certain conditions, property owners can still claim property tax deductions. With property tax increasing, now is a good time to learn more about tax deductions and make claims where applicable. Following are different kinds of property tax deductions available for homeowners and property owners.

Save More in 2021 with Property Tax Deductions

Rising property taxes amidst economic instability due to the ongoing COVID-19 pandemic presents a problem for both current and long-term homeowners. However, the good news is that homeowners can still benefit from property tax deductions under certain conditions.

Property Tax Deduction Rules

Homeowners and property owners may be able to deduct up to $10,000 for property taxes and either sales taxes or state and local income taxes. Property owners may be able to claim property tax deductions on the following:

  • Primary home
  • Vacation homes
  • Land
  • Foreign properties
  • Vehicles, including cars, boats, RVs, and more.

You may also be able to deduct property and real estate tax on co-op apartments. However, special rules defined in IRS Publication 530 may apply. On the other hand, the IRS does not allow property tax deductions in the following cases:

  • Property tax on property that is not owned by the individual making the claim
  • Unpaid property taxes
  • Homeowner association assessments
  • Assessment for building neighborhood management (building sidewalks, streets, sewer system, etc.)
  • Tax for services (trash, water, etc.)
  • Transfer tax on the sale of the property
  • Loan payments for financing energy-saving home improvements
  • More than $10,000, or more than $5,000 if married filing separately

How to Take the Property Tax Deductions

Proper tax preparation is the key to identifying and claiming property tax deductions. Here is how to take the property tax deduction:

  • Step 1 – Obtain a copy of the tax bill for your home from the local taxing authority and scrutinize the paperwork on the movable assets. The portion of the property tax levied on moveable assets (car, boat, RV, etc.) might be deductible.
  • Step 2 – Provide a copy of the property tax bill to your tax accountant. Property taxes can be deducted if it is assessed uniformly at a similar rate for similar property in the community. A property tax bill may include items for special assessments that are not deductible but may increase the cost basis of the property.
  • Step 3 – Fill out Schedule A. It is an IRS form 1040 used to claim itemized deductions on tax returns.
  • Step 4 – Make sure you deduct the property taxes in the years that you pay them. In other words, only deduct the taxes that are actually paid during the year.

Tax preparation and claiming property tax deductions might seem simple. However, it can be tricky when you get into the details of more complex ownership situations. A better approach is to opt for professional tax preparation and filing services to transform your individual situation into opportunities. Windes Individual Tax Preparation Services can help you pay less and save more.

Contact Windes to learn more about property tax deduction and other audit, tax, and advisory services.

For questions or more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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