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  • Halverson & Company

Limitations on Property Tax Deductions for Individuals

The Tax Cuts and Jobs Act (TCJA) changes how property (real estate) tax deductions can affect your federal tax return starting in 2018. Deductible property taxes include taxes paid at closing when buying or selling your home, as well as taxes paid to your county’s tax assessor on the assessed value of your property. Under the prior law, you could claim an itemized deduction for the entire amount of personal state, local, and foreign income and real property taxes paid in that year on Schedule A of Form 1040.

For tax years 2018-2025, the TCJA disallows foreign real property taxes to be deducted, and limits itemized deductions for personal state and local income taxes and real property taxes to a combined total of $10,000 ($5,000 for married filing separate). Individuals who pay high property taxes or own multiple homes are affected and cannot deduct property taxes exceeding $10,000 even if they deduct nothing for personal state and local income taxes.

The alternative minimum tax (AMT) disallowance rule, which was in effect before the TCJA, still applies- meaning if you are subject to AMT, itemized deductions for personal state and local property taxes and income taxes are completely disallowed.

State, local, and foreign property taxes, and sales taxes which are normally deductible on Schedule C, Schedule E, and Schedule F are not capped and remains deductible not subject to these new limitations.

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