You can deduct the real estate taxes that you pay on your home or condominium, or other property, but you must deduct them in the year that you pay them. For example, if you received a January 2011 bill and prepaid it in December 2010, then you would deduct that amount on your 2010 tax return.
If you have a mortgage and the bank distributes your real estate taxes from an escrow account, then the bank or mortgage company will report the amount of real estate taxes that you paid on the Form 1098 that they send you. By law, you should receive a Form 1098 no later than January 31, 2011. If you don’t receive a Form 1098 by then, you should contact the lending institution that holds your mortgage.
Real estate and property taxes are also reported on HUD statements. This is the statement that you receive when you either purchase a property or sell one. It breaks down the taxes paid by both the buyer and the seller.
Special assessments charged by condominium associations aren’t deductible as real estate taxes. These fees are considered condominium fees. However, a condo owner can deduct property taxes paid with their association fees if they can get a statement from their condo association telling them the amount of property tax that their fees were used to pay.
You can deduct the tax that you pay on personal property. A personal property tax, also known as an excise tax, is based upon the value of the item. There are quite a few items for which excise tax is levied, but the most common ones are cars and boats.
To deduct property taxes all of the following must be true:
The tax must be ad valorem, that is, substantially in proportion to the value of the personal property.
The tax is imposed on an annual basis, even if collected more or less than once per year.
The tax is imposed on personal property.
For example, if you receive a bill from your city for 2% of your car’s assessed value each year, you can deduct the amount that you paid. However, if your town sends everyone a bill for $100 regardless of the car’s value, then you can’t deduct the amount on your taxes.
Real estate and personal property taxes are claimed as itemized deductions on Schedule A on lines 6 and 8 respectively.
Taxes deducted elsewhere on your return (Schedule E, for example) are not eligible for this deduction.