question.jpgIn Federal Income Tax

Can I deduct real estate tax?

You can generally deduct state, local and foreign real estate tax on property that is not used for a business purpose. To take this deduction, you must be itemizing your deductions, as opposed to taking the standard deduction. To be deductible, the tax must be based on the assessed value of your property, and that assessment must itself be based on a uniform rate which has been imposed for public purposes. You generally cannot deduct taxes that are for local benefits (for example, you cannot deduct localized taxes that go towards trash collection) or other improvements which increase your property value.

When you make your monthly mortgage payments, these payments usually include tax payments as well, which are deductible. To determine the deductible amount, if the taxes are not separately listed for easy calculation, you should contact your lender to obtain a year end statement of their payments, on your behalf, to the tax authorities. This is also important because you can only deduct payments when they are paid to the tax authorities, not when you paid the borrower. For example, your December mortgage payment may include taxes, but if the borrower does not forward that tax payment to the relevant taxing authority until January, those taxes would not be deductible until the next tax year.