Tax Tip: Deducting Real Estate Taxes

Tax Tip: Deducting Real Estate Taxes

Editor's Note: This article is part of our 2013 Tax Tips series. Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.

NEW YORK (MainStreet) — If you itemize you can deduct the municipal, school and county, and state and foreign real estate taxes - based on the assessed value of real property (land and “improvements”) - you paid during the year, whether you sent the check directly to your township, municipality or county or they were paid out of a mortgage escrow account.

You can deduct the taxes paid on all of the properties you own, including unimproved lots. There is no limit to the number of properties on which you can claim a deduction for real estate taxes on Schedule A. Property taxes paid on rental properties are deducted on Schedule E.

Charges for specific services, such as trash collection or water consumption, are not deductible as real estate tax. Neither are special assessments for capital improvements that will increase the value the property, like a new sidewalk. But you can deduct additional assessments to maintain public facilities, such as to repair existing sidewalks.

Did you buy or sell a residence or vacation property in 2012? Don’t forget to include any additional real estate taxes paid as an adjustment at the closing. This is the estimated real estate tax liability that has accrued from the last regular tax payment to the date of closing. If you have prepaid real estate taxes and receive a credit adjustment at the closing you must reduce your deduction by this amount.

And also remember to deduct the portion of your annual maintenance fee assessment for a time-share condo, such as Disney or Marriott, that represents your share of the property’s real estate taxes. This amount should be identified on the annual billing statement.