A taxpayer is eligible to take an itemized tax deduction for real estate taxes paid during the tax year. Whether a taxpayer itemizes their tax return deductions or takes the standard deduction depends on which one will give the taxpayer the greatest tax benefit.
In order for the taxpayer to be eligible to take the real estate tax paid deduction they must satisfy the following general requirements:
- The property tax was assessed in 2017, meaning the taxpayer is liable for the tax. A taxpayer cannot pre-pay or pay a tax that does not exist.
- The taxpayer owns the property
- The taxpayer pays the tax, meaning the taxpayer uses their own funds to pay the tax. A taxpayer should pay their taxes using one of their own financial accounts as opposed to cash.
An individual that pays real estate taxes for property that they do not own nor are liable than neither the person that owns the property, or the individual that pays the tax may take the deduction. An individual might consider gifting to the liable taxpayer so they are still able to take the deduction, ask your tax pro for more information.
The Mortgage Interest Deduction has 5 similar general requirements:
- Who paid the mortgage – only the taxpayer that paid mortgage is eligible to take the deduction.
- Who is listed as the borrower – A taxpayer can only deduct interest on debt on which they are legally liable.
- Who has legal title to the house – Exception to #2 is if not directly liable on the mortgage than a taxpayer can deduct interest they paid on the debt as long as they are the legal owner of the house
- Is the home secured by the residence
- Limit on deducting personal mortgage interest
Real estate taxes and mortgage interest are common deductions each year on many tax returns. The deductions seem obvious but the underlying requirements must be satisfied in order to take a legal deduction. See our attached handout for more information about homeowner itemized tax deductions, Itemized_Deductions_-_Homeowners_2017
This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer for following the advice. Other factors may need consideration that would change the opinion presented.