Paying property taxes can feel like an incredible burden, especially when you own rental properties. Operating expenses, financing costs, and property taxes can feel like they take any profits you’d earn from your rental property, making it difficult to get ahead.
Tax deductions are often a way to reduce liabilities and increase profits, but are property taxes deductible?
Unfortunately, investment property real estate taxes aren’t deductible on Schedule A, like the deduction homeowners may take on the home they live in full time. But, the good news is there may be a way to write off the hefty cost of property taxes and increase your profits.
Here’s everything you must know about rental properties and real estate taxes.
What Are Property Taxes?
Property tax is the tax real estate owners pay to own commercial or personal property. The local city or county government determines the property’s assessed value and calculates the property taxes accordingly.
Most state and local government agencies rely on property taxes as income, and all states charge property taxes, although the tax rates vary by location.
In any state, if you fail to pay your property taxes, your taxing authority will place a lien on the property or hold a tax lien sale. This means you must satisfy the lien before selling or transferring the property and could be subject to large penalties and fines.
You pay property taxes whether you finance the property with a mortgage, pay mortgage interest, or pay cash for the property.
Understanding the Property Tax Deduction
A property tax deduction is money paid for state and local taxes that homeowners may be eligible to deduct from their federal income taxes. It reduces the income taxes owed on property taxes paid on an eligible property.
Home and property owners must pay real estate taxes whether they live in the property or rent it to tenants. If you are the owner of record, you must keep up with the property taxes owed to…