Property taxes are deductible up to $10,000 ($5,000 for married filing separately) under the SALT cap, including state and local income taxes or sales taxes.
The IRS allows homeowners to deduct property taxes paid on their primary residence, vacation home, or land. This deduction falls under the State and Local Tax (SALT) deduction, which includes income, sales, and property taxes. The total deduction for all SALT categories is capped at $10,000 annually for single filers and married couples filing jointly. For those married filing separately, the limit is $5,000.
Deductible property taxes include:
Note that special assessments for local improvements (like sidewalks or sewers) are not deductible unless they increase the value of your property.
Homeowners use this deduction to lower their taxable income, potentially moving them into a lower tax bracket. For example, if you pay $8,000 in property taxes and $2,000 in state income taxes, you can deduct up to $10,000 total under the SALT cap. The deduction is most beneficial for high-tax states like California or New York, where property taxes exceed $10,000 annually.
Many taxpayers confuse property tax deductions with mortgage interest deductions or assume all local fees qualify. Special assessments for public projects (like road repairs) are not deductible unless they directly improve property value., renters cannot deduct property taxes since they don't pay them directly.
Suppose you're a married couple filing jointly in 2023. You paid $9,000 in property taxes and $2,000 in state income taxes. Your total SALT deduction is $11,000, but the IRS caps it at $10,000. You'd deduct $10,000, leaving $1,000 off the books. If you paid $12,000 in property taxes and no state income taxes, you'd still only deduct $10,000.
When I filed my taxes last year, I initially missed the SALT cap and tried to deduct $12,000 in property taxes. My accountant corrected me, showing how the $10,000 limit applied. After adjusting, I saved $300 more by combining state income and property taxes under the cap.
For further details, refer to the IRS Publication 17 and Tax Foundation's state tax guides.