Property tax is a local tax assessed on real estate by a city, county, or municipality. It is based on the assessed value of the property, including land and buildings, and is used to fund public services such as schools, roads, police, and fire departments.
Key Points
Who Pays Property Tax?
- Property owners, including:
- Homeowners
- Landlords
- Businesses that own real estate
How Is Property Tax Calculated?
- Local governments determine an assessed value for the property
- A tax rate (often called a mill rate) is applied to that value
Example:
If a home is valued at $200,000 and the local tax rate is 1.2%, the annual property tax is $2,400.
When Is It Paid?
- Usually annually or semi‑annually
- Payment schedules vary by local jurisdiction
- Taxes may be paid:
- Directly by the owner, or
- Through an escrow account with a mortgage lender
Where Is Property Tax Deducted on a Tax Return?
- Property taxes may be deductible on Schedule A (Form 1040) if the taxpayer itemizes
- Property tax is included in the State and Local Tax (SALT) deduction
SALT Deduction Rules (Updated)
Federal Deduction Limits (OBBBA)
- 2026 SALT cap:
- $40,400 (Single / MFJ)
- $20,200 (Married Filing Separately)
- Income‑based phaseout:
- Begins at $505,000 MAGI ($252,000 MFS)
- Deduction reduced by 30% of excess MAGI
- Cannot be reduced below $10,000
- Cap reverts to $10,000 in 2030, unless changed by Congress
Property tax is not deductible for federal purposes if:
- The taxpayer takes the standard deduction, or
- SALT payments exceed the applicable cap
Example
A homeowner in Georgia owns a house valued at $250,000.
- Local property tax rate: 1.5%
- Annual property tax:
$250,000 × 1.5% = $3,750
If the homeowner itemizes and their total SALT payments are below the cap, the $3,750 may be deductible on their federal return.
Tips
- Property tax deductions apply only to real estate, not personal property (unless specifically assessed as part of real property)
- Mortgage statements may include property tax paid through escrow—verify the actual amount paid
- Property taxes on rental or business property are generally deductible as a business expense, not on Schedule A