According to our 2026 National Homeowner Survey, 64% of U.S. homeowners were shocked by their most recent property tax bill — yet most never realize how much of that bill the Internal Revenue Service (IRS) will let them write off.
Yes, your tax bill can be deductible on your federal return, but only under specific conditions. You have to itemize, your income can affect the cap, and some properties follow entirely different rules.
Below, we explain who qualifies, which properties are eligible, and how the new SALT caps work for 2025 and 2026. For the basics of how property taxes work, start with Ownwell's first-time homeowner property tax guide.
Key Takeaways
Property taxes are deductible on federal returns only if you itemize on Schedule A (Form 1040) — not if you take the standard deduction.
The OBBBA raised the SALT deduction cap from $10,000 to $40,000 for 2025, increasing to $40,400 in 2026, per H.R.1. The cap reverts to $10,000 in 2030.
High earners with MAGI above $500,000 face a phase-down that reduces the cap by $0.30 per excess dollar, with a $10,000 floor, per IRS guidance.
Rental and investment property taxes are deducted on Schedule E and are not subject to the SALT cap — making them fully deductible as a business expense.
Reducing your assessed value through a property tax challenge lowers your bill before it ever reaches Schedule A — which is where the real savings compound year over year.
Under 2025 Internal Revenue Service (IRS) rules, you can deduct these taxes. You can also deduct mortgage interest on your income taxes for a main residence and one designated second home, as long as you itemize deductions on your federal tax return.
Note, though, 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 (MAGI). The One Big Beautiful Bill Act (OBBBA), aka H.R.1, passed in 2025.
The One Big Beautiful Bill Act (OBBBA), aka H.R.1, temporarily increased the SALT cap from $10,000 to $40,000 beginning in 2025. High earners above $500,000 MAGI face a phase-down — see the full breakdown in the SALT Cap section below.
Here is what that deduction means in dollars for a typical homeowner.
A home assessed at $400,000 with a 1.4% effective tax rate carries an annual bill of roughly $5,600. For a homeowner in the 24% federal bracket, deducting that full amount reduces taxable income by $5,600, yielding up to $1,344 in federal tax savings.
However, actual net savings depend on your total deductions: itemizing only reduces your tax bill if your combined deductions (such as mortgage interest, property taxes, and charitable contributions) exceed the standard deduction threshold ($15,750 for single filers or $31,500 for married couples filing jointly in 2025).
Tax rates from Ownwell's Texas property tax trends data. Savings vary by income bracket and total itemized deductions.
How Much Are You Over Paying?
Certain properties qualify for property tax deductions. A tax professional can assist you with understanding the guidelines by property type:
Property Type | Where to Deduct | Subject to SALT Cap? | Key Notes |
|---|---|---|---|
Primary residence | Yes, $40,000 cap (2025) | Can also deduct property taxes reimbursed to a seller at purchase | |
Vacation homes and Ownwell's second properties glossary | Schedule A (Form 1040) | Yes, same SALT limits apply | Must itemize on federal return |
Rental and investment properties | Schedule E | No, fully deductible as business expense | Must report rental income when rented more than 14 days/year |
Business properties | Schedule C (Form 1040); use Form 8829 for home offices | No, deducted as a business expense | Homes with a dedicated home office qualify for a partial deduction Form 8829 is only available to self-employed individuals and independent contractors |
The Tax Cuts and Jobs Act of 2017 capped the total SALT deduction for 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 SALT deduction limit. Beginning in 2025 and 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 cap is expected to revert to $10,000 if Congress does not renew it.
If your annual MAGI exceeds $500,000 (or $250,000 if you are married and filing separately), there are limitations to how much you can deduct.
For every dollar of MAGI above the $500,000 threshold, your allowable SALT deduction shrinks by 30 cents. The deduction cannot fall below the $10,000 floor.
The cap does not stay flat. Under the OBBBA, it increases 1% annually from 2025 through 2029, which is why the 2026 figures step up from 2025. Here is how the cap changes by tax year:
Tax Year | Standard Filers | Married Filing Separately | MAGI Phase-down Threshold |
|---|---|---|---|
2024 | $10,000 | $5,000 | N/A |
2025 | $40,000 | $20,000 | $500,000 ($250,000 MFS) |
2026 | $40,400 | $20,200 | $505,000 ($252,500 MFS) |
2030+ | $10,000 | $5,000 | N/A |
In high-tax states like New Jersey, where the median tax bill in some towns exceeds $18,000, the new $40,000 cap unlocks thousands of dollars in deductions that were previously capped at $10,000.
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. However, they can reduce capital gains tax liability by lowering net sales proceeds when selling a home.
Some states restrict the deduction of state income taxes. Check your state's individual rules regarding property tax deductions.
Your tax bill is only deductible when itemized. You cannot deduct it 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.
In 2026, the standard deduction rises to $16,100 for single filers and $32,200 for married couples filing jointly.
Compare your total itemized deductions — including your tax bill, mortgage interest, and charitable contributions — against the standard deduction. When itemized deductions exceed $15,750 (single) or $31,500 (MFJ) in 2025, itemizing saves more.
No state is exempt from property taxes — see Ownwell's guide to states without property taxes for a full breakdown. Here is how to lower what you owe the county and maximize your deduction:
Take advantage of the new higher deduction caps now. Filing your 2025 return is your first chance to claim the full $40,000 cap — but it reverts to $10,000 in 2030. Don't miss the window.
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. However, prepayment is deductible only if the local tax authority has officially assessed the property tax before payment. The IRS disallows deductions for estimated prepayments made before an official assessment bill is issued.
Apply for your homestead exemption, which lowers the assessed property value and your overall tax liability. Many states also offer exemptions for seniors, people with disabilities, and veterans.
Challenge an inaccurate assessment. Your assessed value directly sets your tax bill. Contest misinformation and lower your valuation — the right applies in every state, though terminology varies.
Consult a tax professional to help you understand new tax laws, SALT deduction caps, and how they will impact your unique circumstances.
You can challenge your assessment; terminology varies by state, but the right to contest your valuation applies nationwide.
The single most common mistake we see: homeowners focus only on deductions and overlook the assessed value driving the bill in the first place.
Homeowners without a mortgage or escrow account pay property taxes directly to the county on the due date. If that is you, track your payment dates carefully by tax year so you deduct in the correct year.
Timing matters if you pay through mortgage escrow. Your deduction is based on when your lender remits payment to the county, not when you make your monthly escrow contributions.
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 deducting property taxes a more advantageous strategy.
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
Where you live changes the math dramatically. Whether itemizing pays off depends on how large your actual tax bill is relative to your standard deduction.
For example, the median tax bill in Tenafly, New Jersey, is $18,167. Thus, homeowners in Tenafly benefit more from itemizing their property taxes unless they are married filing jointly.
By contrast, homeowners in Alabama pay a median annual tax bill of only $717. The standard deduction will likely produce more savings there unless other itemizable expenses are significant.
Homeowners in high-tax states benefit most from the expanded SALT cap. In New York and Illinois, annual tax bills in many counties routinely exceeded the old $10,000 SALT limit — meaning thousands of dollars were previously undeductible no matter how much a homeowner paid.
Deducting your tax bill reduces what you owe the IRS — but only on the amount you were billed. We save our customers an average of $774 per year by cutting that bill at the source: reducing your assessed value before the IRS ever sees it.
We manage the entire process end to end. We build the evidence, file the paperwork, and represent you at hearings — all at no upfront cost.
Here is what that service delivers:
Ownwell customers receive reductions in 88% of cases
Our customers save an average of $774 per year
We maintain a 4.7 rating across 3,000+ Google reviews
No upfront cost — you only pay if you save
If you would like to see how much you could save, start your property tax appeal.
Frequently Asked Questions
Are Property Taxes Deductible on Federal Returns?
Yes — property taxes are deductible on your federal return, but only if you itemize deductions on Schedule A (Form 1040). If you take the standard deduction, you cannot deduct them.
What Is the Property Tax Deduction Limit in 2025?
The SALT cap in 2025 is $40,000 for most filers ($20,000 for married filing separately). This covers your combined state and local income taxes, sales taxes, and property taxes. The cap rises to $40,400 in 2026 and reverts to $10,000 in 2030.
Can I Deduct Property Taxes on a Rental Property?
Yes, and the rules are more favorable. Rental property taxes are deducted on Schedule E as a business expense and are not subject to the $40,000 SALT cap. You can deduct them in full alongside other rental-related expenses.
Does Challenging My Assessment Affect My Property Tax Deduction?
Yes — and in a good way. Successfully lowering your assessed value reduces your annual tax bill. A lower bill means a smaller dollar amount to deduct, but also a smaller payment to make in the first place. As a result, our customers save an average of $774 per year.
