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The Deduction for Real Estate Taxes

Real estate taxes are one of two primary homeowner deductions, alongside mortgage interest, but not everything on your tax bill or escrow statement actually qualifies.

Nondeductible items in your house payment

Your monthly mortgage payment often bundles together several costs, but only two are deductible: real estate taxes actually paid to the taxing authority, and interest that qualifies as home mortgage interest. Fire and homeowner's insurance premiums, FHA mortgage insurance premiums, and any portion of your payment applied to reduce loan principal are not deductible, even though they're part of the same monthly bill. Members of the clergy or uniformed services who receive a nontaxable housing allowance can still deduct real estate taxes and mortgage interest in full, without reducing those deductions by the allowance.

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What is meant by real estate taxes

A real estate tax is a state or local government's annual charge based on the assessed value of real property. To be deductible, the tax must be based on assessed value, applied at a uniform rate across the jurisdiction, and levied for the general public welfare rather than as payment for a specific service or privilege you personally receive.

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Deductible taxes

You can deduct real estate taxes imposed on you and paid during the year, either at closing or directly to the taxing authority, including through an escrow account. Cooperative apartment owners generally qualify too, under special rules discussed below. Under the Tax Cuts and Jobs Act of 2017, for tax years 2018 through 2025, the combined deduction for real estate taxes plus state and local income or sales taxes is capped at $10,000 per year ($5,000 if married filing separately), so this deduction doesn't operate in isolation from your other state and local tax deductions.

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How the deduction splits on a purchase or sale

When a home changes hands mid-year, real estate taxes are generally divided between buyer and seller based on how much of the property tax year each owned the home, regardless of local lien dates; the seller is treated as paying up to, but not including, the date of sale, and the buyer from that date forward. Each party deducts their own share if they itemize, and this split is typically documented on the closing settlement statement. Delinquent taxes from a prior owner that you agree to pay as part of the purchase aren't deductible; they're instead added to your home's cost basis. If part of your monthly payment goes into an escrow account for taxes, you can only deduct the amount your lender actually paid the taxing authority from that account, not the total you contributed to it. And if you receive a refund of taxes you deducted in a prior year, you may need to include some or all of that refund as taxable income.

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Items not considered real estate taxes

Several charges that appear on a property tax bill don't actually qualify as deductible real estate taxes. Itemized service charges, such as a per-unit water fee, a flat monthly trash collection charge, or a one-time lawn-mowing fee from a code violation, are not deductible even if billed by the taxing authority. Assessments for local benefits that increase your property's value, like new sidewalks, streets, or sewer systems, generally aren't deductible either; instead, they're added to your property's cost basis, though the portion of an assessment specifically for maintenance, repair, or interest can still be deducted if you can document that portion separately. Transfer or stamp taxes on a home sale aren't deductible as taxes: buyers add them to their cost basis, and sellers treat them as a selling expense. And homeowners association assessments are never deductible as real estate taxes, since they're imposed by a private association rather than a government authority.

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Special rules for cooperatives

If you own a cooperative apartment, you technically hold shares in a corporation that owns or leases the housing, rather than owning real property directly. You can still deduct your proportional share of the cooperative corporation's deductible real estate taxes, provided the cooperative housing corporation meets certain qualifying conditions, generally putting co-op owners on similar tax footing to other homeowners.

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Frequently asked questions

Is my full escrow payment for property taxes deductible?

No. You can only deduct the amount your lender actually paid to the taxing authority from escrow during the year, which your real estate tax bill will show, not the total amount you contributed to the escrow account.

Are homeowners association fees tax deductible?

No. HOA assessments are not deductible as real estate taxes because they're imposed by a private association rather than a government taxing authority.

Is there a cap on how much in real estate taxes I can deduct?

Yes. For tax years 2018 through 2025, the combined deduction for real estate taxes plus state and local income or sales taxes is limited to $10,000 per year ($5,000 if married filing separately).

This guide is for general informational purposes only and is not tax, legal, financial, or investment advice. Every business situation is different, so consult a licensed professional before making decisions based on this content.