What You Need to Know About the Property Tax Deduction

By now, you have probably heard that the sweeping federal income tax reforms have impacted the way many people itemize their deductions. In particular, the property tax deduction limit has caught plenty of attention (and complaints). So, what do you need to know about claiming this deduction, and how will it affect you?

First, the basic rule (that everyone is talking about) is the limit on claiming state, local, and property taxes. Combined, you can only claim a $10,000 credit for all of these taxes, if you are single, head of household, or married filing jointly. Married couples who file separate returns can split this deduction, and can only claim up to $5,000 each.

Those with higher property taxes (such as homeowners in California) have expressed some disappointment in the new limit.

However, before you leap to any conclusions, there is another factor to consider with regard to federal income tax deductions. The standard deduction has increased dramatically, to $12,000 for individuals, $18,000 for head of household, and $24,000 for married couples.

Why does this matter? Essentially, the deduction for state, local, and property tax only applies to those who itemize their returns. If your total itemized deductions won’t exceed your standard deduction, then you’re better off claiming the standard deduction anyway.

That’s why it can be important to “run the numbers” for both scenarios. Add up your itemized deductions, including your property tax deduction, and compare it to your standard deduction. If the standard deduction is higher, then you’re probably better off filing that way anyway.

Please note that it is always best to consult with a tax professional before making a big decision about your tax filing status. Reading blogs is a terrific way to gather general information on financial and tax topics, but individual situations can sometimes vary from the norm.

Give us a call if you have any financial planning questions, and we’ll be happy to help.