Property taxes are tax-deductible, but there are stipulations you should know about before filing. Find out who qualifies to deduct property taxes, which properties are eligible, and what deduction limitations exist. Deduction caps and recent laws impact how much of your property taxes are tax-deductible.
Learn more about property taxes here, including the best method for recording tax deductions and which forms to use when filing.
Who Qualifies To Deduct Property Taxes?
Under 2025 IRS rules, property taxes are deductible. You can also deduct real estate taxes and mortgage interest on your income taxes for a main residence and other real estate holdings as long as you itemize deductions on your federal tax return.
If you take the standard deduction when filing taxes, you cannot deduct your property taxes.
There are also deduction limits on state and local taxes (SALT) based on your household’s annual modified adjusted gross income. The so-called One Big Beautiful Bill Act (OBBBA), aka H.R.1, passed in 2025, temporarily increases the deduction cap from $10,000 to $40,000 beginning in 2025 and lasting through 2029, when it drops back down to $10,000 in 2030. The cap benefits homeowners in high-value areas by allowing larger deductions of federal property tax liability.
Which Properties Are Eligible for Tax Deductions?
Certain properties qualify for property tax deductions. A tax professional can assist you with understanding the guidelines by property type:
Primary residence: You can claim a property tax deduction on your primary residence by listing the property as an itemized deduction on Schedule A (Form 1040). Temporarily, from 2025 through 2029, there is a $40,000
cap on SALT deductions, or $20,000 for couples who are married and filing separately. You can also deduct property taxes reimbursed to a seller upon property purchase.
Vacation homes and second properties: You may file for tax deductions on vacation homes and second properties as long as you itemize them on your federal tax form. The same SALT limitations apply.
Rental and investment properties: You can also itemize deductions for rental and investment properties on your federal taxes. You must report any rental income as part of your tax liability when a property is rented out for more than 14 days per year. Property taxes paid on rental properties can be deducted as business expenses, along with other rental-related expenditures like utilities and maintenance.
Business properties: Properties used as part of a trade or business qualify for property tax deductions as business expenses on Schedule C (Form 1040). Residential homes with a home office or home business qualify for deductions. You can calculate deductions on Form 8829 and transfer them to Schedule C.
What Is the SALT Cap in 2025?
The Tax Cuts & Jobs Act of 2017 capped the total amount of SALT deductions on property taxes. Under the cap, you could only deduct property taxes up to $10,000, or up to $5,000 if married and filing separately.
The OBBBA temporarily increases the limit on SALT deductions. Beginning in 2025 through 2029, the SALT cap increases from $10,000 to $40,000 or from $5,000 to $20,000 if married and filing separately. In 2030, the SALT cap is expected to revert back to $10,000.
If your annual Modified Adjusted Gross Income (MAGI) exceeds $500,000 (or $250,000 if you’re married and filing separately), there are limitations to how much you can deduct.
For every dollar of MAGI you earn above the $500,000 threshold, your maximum allowable $40,000 SALT deduction is reduced by 10 cents.
Example calculation for someone making $650,000 MAGI:
1. Calculate Income Over the Threshold:
$650,000 (MAGI) - $500,000 (Threshold) = $150,000
2. Calculate the Deduction Reduction:
$150,000 (Excess Income) x $0.10 (10 cents per dollar) = $15,000
3. Determine Your New SALT Cap:
$40,000 (Starting Cap) - $15,000 (Reduction) = $25,000
In this scenario, the taxpayer's maximum SALT deduction for 2025 would be $25,000, not $40,000.
You’ll get the most benefit from the increased SALT cap if you live in a state or area with high property values, as you can claim the larger deduction until 2030.
What Taxes Don’t Qualify?
For your federal tax return, the following taxes and fees are not deductible from personal income tax liability:
Property improvements that directly increase property value (converted garage to a room, adding a pool)
Special assessment taxes
Fees for trash, water, or other utilities, unless they are part of a rental business expense
Fines or homeowner’s association fees
Transfer and sales tax upon the sale of a house
Some states have restrictions on the deduction of state income taxes. Check your state's individual rules regarding property tax deductions.
Should You Itemize or Take the Standard Deduction?
Property taxes are only deductible when itemized. You cannot deduct property taxes if you take the standard deduction. The standard deduction for single filers is $15,750 and $31,500 for married couples filing jointly in 2025.
Comparing your itemized deductions to the standard deduction is a good tax savings strategy. If the amount of itemized tax deductions exceeds the standard deduction threshold, itemizing results in greater tax savings.
How To Deduct Property Taxes
There are no states without property taxes. However, you can deduct property taxes and maximize your savings with these tips:
Take advantage of the new higher deduction caps now through 2029. Stay abreast of local, state, and federal tax laws, restrictions, and deduction limits.
Itemize deductions on your federal tax return so you can take advantage of tax savings.
Pay property taxes strategically. Prepaying part of a semi-annual tax bill in the current tax year may allow you to deduct it now instead of after the first of the year, maximizing the deduction.
Apply for general homestead exemptions, which lower the assessed property value and your overall tax liability. Many states also offer exemptions for seniors, people with disabilities, and veterans.
Appeal an unfair or inaccurate property assessment. Your property’s assessed value affects the amount you pay in taxes. You can protest the tax amount by filing an appeal to correct misinformation and lower your assessed property value.
Consult a tax professional to assist you in understanding new tax laws, SALT deduction caps, and advise you on how they will impact your unique circumstances.
Understanding Property Tax Deduction Limits (2025-2029)
Deduction limits cap the amount you can claim on your federal income taxes for property tax deductions. Remember, the property tax deduction limit is $40,000 if you’re single or $20,000 if you’re married and filing separately. When deducting property taxes, include state and local real estate taxes you paid on your main residence and on any other real estate you own.
Special Considerations for Investment and Rental Properties
Investment and rental properties rented for more than 14 days per year are subject to income tax liability on the rental fees. You may deduct property taxes on investment and rental properties as business expenses.
One distinct difference for rental properties: The SALT cap of $40,000 does not apply when you deduct these taxes as a business expense. As a result, itemizing your expenses for rental or investment properties could make property tax deduction a more advantageous strategy.
Common Mistakes To Avoid When Claiming Property Tax Deductions
Avoid these missteps when claiming property tax deductions on your federal, state, and local tax returns:
Failing to itemize deductions can result in a higher tax liability
Exceeding the upper SALT cap limit for your income bracket
Attempting to deduct escrow payments along with property taxes paid
Deducting property taxes in the wrong tax year
Forgetting to track property-related expenses in case of an audit
Leaving off deductions for property repair-related expenses
Navigating IRS Compliance and Audit Risks
You can reduce the risk of an IRS audit by honestly and accurately reporting deduction-eligible property-related expenses. Keep detailed records, including income, expenses, and deductions. Save documentation like receipts, invoices, and bank statements.
State-Specific Workarounds for Maximizing Deductions
Consult a local tax professional regarding state-specific strategies for maximizing deductions on your tax bill and following federal and state laws. For example, the median tax bill in Tenafly, New Jersey, is $18,167. It’s more beneficial for homeowners in Tenafly to itemize their property taxes unless they're a married couple filing jointly.
On the other hand, homeowners in Alabama, where the median tax bill is only $717, might save more by taking the standard deduction as long as they don’t have any other property liability.
Are You Paying Too Much in Property Taxes?
Now that you’re aware that property taxes are deductible, it’s a good strategy to have in your back pocket. But if you’re looking for ways to reduce your tax liability, you have options! One of them is to find out if you are overpaying in the first place—and reduce the amount of your tax bill.
At Ownwell, we specialize in property tax savings. We ensure homeowners, investors, and commercial real estate owners pay only their fair share of property taxes. Often, people are unaware that they’re overpaying, which means they can protest the tax amount.
We get reductions in 86% of our cases, saving homeowners an average of $1,148 on their bills.
If you’d like to see how much you could save on your property taxes — and how easy it is to do it with Ownwell —sign up now!
