Property Taxes

Deducting Property Taxes

Most homeowners pay property taxes to a local, state or foreign government. In most cases, property taxes are deductible. They must be charged uniformly against all property in the jurisdiction and must be based on the assessed value.

Many states and counties also impose property taxes for local improvements to property, such as assessments for streets, sidewalks, and sewer lines. These taxes cannot be deducted. Local property taxes are deductible only if they are for maintenance or repair, or interest charges related to those benefits.

Impound Accounts

Many mortgages have impound or escrow accounts. The borrower’s payment exceeds the amount necessary to pay the principal and interest. The excess goes into an account used to pay property taxes, homeowner’s insurance and mortgage insurance.

When calculating your property tax deduction, don’t deduct what you pay into that account. Only deduct what is paid from the account to the taxing authority.

Limits on Deductions

You may be subject to a limit on some of your itemized deductions. For 2000, this limit applies if your adjusted gross income is more than $128,950, or $64,475 if you are married filing separately.