Are property taxes deductible? This is a common question among Texas homeowners looking to lighten their tax load. Here’s the quick answer: Yes, property taxes are deductible on your federal tax return, but only if you itemize your deductions.
When you own a home in Texas, understanding your property taxes is crucial for managing your budget effectively. Your property tax bill is based on your home’s tax appraised value, which may not accurately reflect your property’s true market value. The good news is that Texas law allows you to protest your tax appraised value if you believe it’s too high. Additionally, the state offers several exemptions that can lower your property taxes.
By understanding both federal tax benefits and Texas property tax laws, you can strategically minimize your tax liability.
Are Property Taxes Deductible? Understanding Federal Tax Benefits
Property taxes can be a hefty expense for homeowners, but the good news is that they are deductible on your federal income tax return. However, there are specific rules and limits you need to be aware of to effectively take advantage of these deductions.
SALT Deduction Limits
One of the key considerations when deducting property taxes is the SALT deduction limit. The SALT (State and Local Taxes) deduction allows taxpayers to deduct up to $10,000 ($5,000 if married filing separately) of their total state and local taxes, which include property taxes, state income taxes, and sales taxes. This cap was introduced by the Tax Cuts and Jobs Act of 2017 and is a major factor to consider when itemizing deductions.
For example, if you paid $8,000 in property taxes and $5,000 in state income taxes, your total SALT deduction would be $13,000. However, due to the cap, you can only deduct $10,000 of that amount on your federal tax return. You’ll need to carefully calculate and decide which taxes to prioritize for deduction.
Requirements for Claiming Property Tax Deductions
To claim property tax deductions, you must itemize your deductions on Schedule A of your federal tax return. You’ll forego the standard deduction in favor of itemizing all eligible expenses, including mortgage interest, medical expenses, and charitable contributions, along with your property taxes.
Compare the total of your itemized deductions with the standard deduction to see which option saves you more money. The standard deduction amounts are adjusted annually for inflation, so always check the current figures before filing your taxes.
Record-Keeping for Tax Deductions
Proper record-keeping is essential for claiming property tax deductions. You’ll need accurate records to support your claims, including:
- Form 1098: Your mortgage lender provides this form, which details the property taxes paid through escrow. You’ll need Form 1098 to verify the amount you can deduct.
- Tax Records: Keep copies of your property tax bills and payment receipts. These documents serve as proof of payment and are necessary if the IRS questions your deductions.
- Escrow Statements: If your property taxes are paid through an escrow account, your lender will provide an annual statement showing the amount paid. Make sure this matches your records.
By staying organized and maintaining detailed records, you can confidently claim your property tax deductions and maximize your potential savings.
Texas Property Tax Exemptions That Lower Your Bill
While property taxes are deductible on your federal return, Texas also offers several exemptions that can lower your property tax bill before you even consider deductions. These exemptions reduce your home’s assessed value, which directly impacts how much you pay in property taxes. Let’s explore the main types of exemptions available to Texas homeowners.
Homestead Exemption
The Homestead Exemption is one of the most common property tax exemptions in Texas. It applies to your primary residence and can reduce the taxable value of your home by $100,000 for school district taxes. This exemption is available to most homeowners who occupy their home as their main residence. Additionally, some counties and cities offer an optional additional exemption, which can further decrease your taxable value.
Age 65 or Older Exemption
For seniors, Texas provides an additional exemption known as the Age 65 or Older Exemption. This exemption offers an extra $10,000 reduction on your home’s assessed value for school district taxes, on top of the standard homestead exemption. Note that homeowners must choose between this exemption and the Disabled Person Exemption—you cannot claim both. Some taxing units may also offer additional local exemptions for seniors.
Disabled Person Exemption
Homeowners with disabilities can benefit from the Disabled Person Exemption. Similar to the senior exemption, this provides an extra $10,000 reduction on school district taxes and can be combined with the homestead exemption. Again, however, you must choose between this exemption and the Age 65 or Older Exemption. To qualify, you must meet the state’s definition of disability and be eligible for disability benefits.
Veterans Exemptions
Veterans and their families can take advantage of several exemptions. Disabled veterans may qualify for partial exemptions based on their disability rating, and those who are 100% disabled could have their entire property tax bill waived. Surviving spouses of disabled veterans may also be eligible for these exemptions, ensuring ongoing tax relief for their families.
These exemptions can make a big difference in your annual property tax bill. By understanding and applying for the appropriate exemptions, you can effectively lower your tax burden.
Beyond Deductions: Strategic Ways to Reduce Your Property Tax Burden
When considering whether property taxes are deductible, remember that lowering your tax appraised value by protesting property taxes in Texas can reduce your tax bill before deductions even come into play. Here’s what Texas homeowners need to know about the protest process.
Understanding Your Property’s Tax Appraised Value
Each year, your county appraisal district determines your property’s tax appraised value. This value, not market value, is what determines your property taxes. While the tax appraised value should reflect market value, it’s not always accurate—and it won’t be the same, since the Central Appraisal District (CAD) doesn’t enter your home.
Your goal is to ensure that your property’s tax appraised value accurately reflects your property’s true market value because mistakes or overvaluations can lead to higher taxes.
The Annual Protest Process
If you believe your property’s tax appraised value is incorrect, you have the right to protest. The following Texas homeowner’s tax protest guide provides a brief step-by-step process to help you through this. Here’s an overview:
- File by the Deadline: You must file a protest by May 15th or within 30 days of receiving your Notice of Appraised Value—whichever date is later. Missing this deadline means losing your chance to contest your assessment for the year. Note that this first step is also your chance to bring in a property tax protest professional to represent you.
- Gather Evidence: Collect evidence that supports your claim. This could include recent real estate market trends, a recent independent appraisal, or professional repair estimates showing property defects.
- Attend the Hearing: Present your case to the appraisal review board. Be clear and concise, using your evidence to argue for a lower assessment.
Protesting can be a powerful tool to lower your property tax bill when done correctly.
Working with Tax Professionals: Beyond Deductions and Exemptions
After you’ve secured your eligible deductions and exemptions, there’s still an important opportunity to reduce your property tax burden through the protest process. Property tax protest professionals specialize in challenging tax appraised values and can often achieve significant savings that reduce your tax bill before deductions come into play.
These specialists focus exclusively on the protest process, using:
- Market analysis tools to evaluate your tax appraised value
- Deep knowledge of local property trends
- Experience presenting evidence at Appraisal Review Board hearings
- Data-driven strategies that achieve an 84% success rate
While tax advisors can help with deductions and exemptions, property tax professionals handle the entire protest process—from filing through representation at your hearing. This means you’ll have a lower tax bill to potentially deduct on next year’s federal return, because you’ll only be paying your fair share in the first place.
Taking Action: Next Steps to Lower Your Property Tax Bill
Managing your property tax requires proactive planning and informed decision-making. Homeowners can reduce their tax burden by conducting annual reviews of their property tax situation and staying aware of changes in tax laws and property values.
When tax appraised values seem inflated, challenging them through the Texas protest process is crucial. Most homeowners can save 3-5% on average by protesting, and these savings compound year over year since you start from a lower baseline the following year.
For Texas homeowners seeking to ensure they’re not overpaying, Home Tax Shield offers expert assistance with the protest process. Our technology-driven approach and local expertise help you efficiently reduce your property tax bill through annual protests, with an 84% success rate and fees 40% below industry average.For Texas homeowners looking to minimize their property tax burden, combining federal deductions, state exemptions, and Home Tax Shield’s proven protest process lets you take advantage of every legal avenue available. Sign up with Home Tax Shield to ensure you’re not overpaying on your property taxes.