You can deduct property taxes on your federal tax return, but only if you itemize deductions and meet specific conditions
Property tax deductions are available to homeowners and some renters, but the rules changed significantly in 2017 and depend on your filing status and total deductions. The State and Local Tax (SALT) deduction lets you deduct property taxes you paid during the tax year, but there is a cap: you can deduct a combined maximum of $10,000 per year in state and local property taxes, income taxes, and sales taxes together. This limit applies whether you are married filing jointly or single. Married couples filing separately can each deduct up to $5,000.
To claim property tax deductions, you must itemize deductions on Schedule A of your federal tax return instead of taking the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions (property taxes plus mortgage interest, charitable donations, and other allowed expenses) exceed the standard deduction for your filing status, itemizing saves you money. If not, taking the standard deduction is the better choice.
Key Takeaways
- You can deduct property taxes only if you itemize deductions on Schedule A, and your total itemized deductions must exceed the standard deduction for your filing status.
- The SALT deduction caps your combined state and local property taxes, income taxes, and sales taxes at $10,000 per year ($5,000 if married filing separately).
- You can deduct property taxes you actually paid during the tax year, including taxes on your primary home, second home, or rental property.
- Property taxes paid through an escrow account held by your mortgage lender count as paid in the year the lender sends the payment to the tax assessor, not the year you made the escrow deposit.
What property taxes may have access to for the deduction
Property taxes on real estate you own may have access to for the deduction. This includes your primary residence, a second home, rental property, or vacant land. The property must be located in the United States. You can deduct only the taxes you actually paid during the tax year—not taxes owed but unpaid, and not taxes paid in advance for a future year.
If you own property jointly with someone else, you can deduct your share of the property taxes. If you are a renter, you cannot deduct property taxes directly, because you do not pay them. Some states offer property tax relief programs for renters, but those are separate from the federal deduction.
Property taxes do not include homeowners insurance, mortgage interest, homeowners association fees, or utility bills. These are separate expenses and have different tax treatment. Only the actual property tax amount—the bill from your county or local tax assessor—counts toward the deduction.
How escrow accounts affect when you can claim the deduction
Many homeowners pay property taxes through an escrow account managed by their mortgage lender. The lender collects a portion of your monthly mortgage payment, holds it in escrow, and pays your property taxes when they are due. The key rule: you can deduct property taxes in the year the lender actually pays the tax assessor, not the year you deposited money into escrow.
This matters most at the end of the year or when you refinance. If you make an extra escrow deposit in December, you cannot deduct it until the lender pays the taxes to the assessor—which may be months or even years later. Your mortgage lender sends you a Form 1098 each January showing property taxes paid from your escrow account during the previous year. Use the amount on Form 1098, Box 10, as your deductible property tax amount.
Calculating whether itemizing saves you money
Before you claim property tax deductions, compare your total itemized deductions to the standard deduction. Add up property taxes (capped at $10,000), mortgage interest, charitable donations, medical expenses above 7.5% of your adjusted gross income, and any other deductions you may have access to for. If the total exceeds the standard deduction, itemizing is worth doing.
Use IRS Form 1040 Schedule A to itemize. Line 5a is where you enter state and local property taxes. Remember that the $10,000 cap applies to the combined total of property taxes, state income taxes, and local sales taxes—you cannot deduct $10,000 in property taxes on top of $10,000 in income taxes. If you live in a state with high income taxes, you may hit the cap with income taxes alone and have little or no room for property tax deductions.
Special situations: rental property and second homes
If you own rental property, you can deduct property taxes as a business expense on Schedule E, separate from the SALT deduction limit. This means rental property owners can deduct property taxes without being subject to the $10,000 cap. However, you must report the rental income and all rental expenses on Schedule E, and the property must be held for the purpose of generating income.
Property taxes on a second home (a vacation home or investment property you do not rent out) fall under the SALT deduction and count toward the $10,000 cap, just like property taxes on your primary residence. You can deduct property taxes on multiple properties, but the combined total of all property taxes, state income taxes, and sales taxes cannot exceed $10,000 per year.
Documents you need to keep
Keep your property tax bill or assessment notice from your county tax assessor. This shows the amount of property tax you paid and the property address. If you paid through escrow, keep your Form 1098 from your mortgage lender—this is the official record of taxes paid on your behalf. If you paid property taxes directly to the assessor, keep your payment receipt or cancelled check.
If you own rental property, keep records showing the property is held for income-producing purposes: lease agreements, rental income records, and documentation of rental expenses. The IRS may ask for these records if you are audited, so store them for at least three years after you file your return.
State and local property tax relief programs versus federal deductions
Some states and localities offer property tax relief programs—such as homestead exemptions, senior exemptions, or property tax deferrals—that reduce the amount of property tax you owe. These programs lower your property tax bill directly, which also lowers the amount you can deduct on your federal return. The federal deduction applies to the taxes you actually paid after any state or local relief is applied.
If you receive a property tax credit or rebate from your state, that reduces your deductible amount. For example, if your property tax bill is $5,000 but your state gives you a $1,000 homestead exemption, you can deduct only $4,000 on your federal return. Do not double-count relief by claiming both a state tax credit and a federal deduction for the same dollar amount.
Frequently Asked Questions
Can I deduct property taxes if I take the standard deduction?
No. Property tax deductions are only available if you itemize deductions on Schedule A. If you take the standard deduction, you cannot also claim property tax deductions. You must choose one or the other based on which gives you the larger tax benefit.
What if I paid property taxes in advance for next year?
You can deduct property taxes only in the year you actually paid them. If you paid 2025 property taxes in December 2024, you can deduct them on your 2024 return only if your state allows prepayment and the taxes were assessed for 2024. Check your property tax bill to confirm the tax year.
Do I lose the property tax deduction if I pay through escrow?
No. Escrow payments count as paid property taxes. Your mortgage lender reports the amount on Form 1098, and you use that figure on Schedule A. The deduction is the same whether you pay directly or through escrow.
Can I deduct property taxes on a rental property I own?
Yes, but differently. Rental property taxes are deducted as a business expense on Schedule E and are not subject to the $10,000 SALT cap. You report rental income and all expenses, including property taxes, on Schedule E.
What happens to the property tax deduction after 2025?
The $10,000 SALT deduction cap is currently set to expire after 2025 unless Congress extends it. After 2025, the cap may increase, decrease, or disappear entirely. Check IRS guidance closer to the end of 2025 for updates on whether the deduction changes for the 2026 tax year.