Can Tax Deductions Reduce Property Taxes Owed?

[Erik1]

Hello,

If I owe property taxes of $7,500 a year, can that be offset by $7,500 worth of business expense tax deductions? Effectively, reducing my property taxes to zero? I'm guessing probably not, but I am a new homeowner so this is all new to me. I'm a self-employed person and I know that business expenses can reduce my income taxes owed, I just am not sure if they can also reduce property taxes owed.

Thank you.

[NCperson]

Property taxes will go on Schedule A - and combined with other taxes (think state income tax) can not exceed $10,000.

Business Expenses go on Schedule E.  Property taxes for your personal residence are not business expenses.

[xmasbaby0]

Your property taxes are a state and/or local tax that you pay---most likely via an escrow account held by your mortgage lender.    Business expenses are not applied toward those property taxes to reduce them.

When you prepare your tax return you can enter your mortgage interest and state and local taxes paid as an itemized deduction that goes on a Schedule A.   The deduction for state and local tax you can use is capped at $10,000.   If all of your itemized deductions exceed your standard deduction then your tax due or refund may be affected.  Very few people have enough itemized deductions to exceed their standard deduction.

If you are self-employed then you enter your business expenses such as mileage, supplies, etc. on a Schedule C. 

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

https://ttlc.intuit.com/questions/1901340-where-do-i-enter-schedule-c

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

STANDARD DEDUCTION

Many taxpayers are surprised because their itemized deductions are not having the same effect as they did on past tax returns.  The new higher standard deduction and the elimination of certain deductions, as well as the cap on state and local taxes have had a major impact since the new tax laws went into effect beginning with 2018 returns.

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts)   The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.

Your standard deduction lowers your taxable income.  It is not a refund.  You will see your standard or itemized deduction amount on line 12a of your 2021 Form 1040.

2021 STANDARD DEDUCTION AMOUNTS

SINGLE $12,550  (65 or older + $1700)

MARRIED FILING SEPARATELY $12,550  (65 or older + $1350)

MARRIED FILING JOINTLY $25,100  (65 or older + $1350 per spouse)

HEAD OF HOUSEHOLD  $18,800  (65 or older +$1700)

Legally Blind + $1350

For next year:

2022 STANDARD DEDUCTION AMOUNTS

SINGLE $12,950  (65 or older + $1750)

MARRIED FILING SEPARATELY $12,950  (65 or older + $1750)

MARRIED FILING JOINTLY $25,900  (65 or older + $1400 per spouse)

HEAD OF HOUSEHOLD  $19,400  (65 or older +$1750)

Legally Blind + $1750

[xmasbaby0]

@Erik1 Since you mentioned that you are a new home owner---some additional information:

Home Ownership

There is not a first time home buyers credit on a Federal return. That ended in 2010. If your state has such as credit, you will be able to enter it when you prepare your state return.

Buying a home is not a guarantee of a big refund.  Your deductions for homeownership combined with your other deductions (if any) must exceed your standard deduction to change your tax due or refund. If you purchased your home late in the year, you do not even have a full year of home 

ownership deductions.

Your closing costs on your new home are not deductible except for prepaid interest, prepaid property tax or loan origination fees.  There are no deductions for appraisal, inspections, title searches, settlement fees. etc.

Your down payment is not deductible.

Your homeowners insurance for fire, hazard, flood, etc. is not deductible for your own home.

Home improvements, repairs, maintenance, etc. for your own home are not deductible.  

Homeowners Association  (HOA) fees for your own home are not deductible.

Go to Federal> Deductions and Credits> Your Home to enter mortgage interest, property taxes, private mortgage insurance (PMI) and loan origination fees (“points”) that you paid in 2021.  You should have a 1098 from your mortgage lender that shows this information.  Lenders send these in January/early February.

[Mike9241 · Accepted solution]

property taxes are generally based on the value of the property. to boot $7500 in property taxes and $7,500 in expenses are both expenses so one can't reduce the other at least at the federal level. I have never seen a state where property taxes are reduced because of business expenses incurred. however, I don't know every state. so check with your state department of revenue.

[Carl]

Property taxes are assessed by your local county property appraiser who determines the tax value of your property. It has nothing to do with your income taxes at all.

[Erik1]

Thank you, I appreciate it. This helps clarify it.