One of the most common questions I get from homeowners, especially around tax time, is whether or not they can deduct their property taxes. It’s a fair question, and the answer is: yes, but there are a few things you need to understand first.
Here’s a simple breakdown.
Real estate taxes, also known as property taxes, are deductible on your federal income taxes. But there’s a catch. You have to itemize your deductions to take advantage of this. If you’re taking the standard deduction, property taxes won’t show up anywhere on your return.
For most homeowners, the question then becomes: does it make sense to itemize?
That depends on your full financial picture. The standard deduction is fairly high right now, which means a lot of people end up taking it instead of itemizing. But if you have significant mortgage interest, charitable contributions, or other deductible expenses on top of your property taxes, itemizing might be worth it.
Here’s the big news that changed things in 2025.
For years, the deduction for state and local taxes, what’s commonly called the SALT deduction, was capped at $10,000. That frustrated a lot of homeowners, especially in higher-tax states. But as part of the One Big Beautiful Bill Act, signed into law on July 4, 2025, that cap was raised significantly. For most homeowners, the new SALT cap is $40,000 per year for tax years 2025 through 2029. That’s a big jump, and it opens the door for more people to actually benefit from itemizing.
To be clear, the SALT deduction includes your property taxes combined with either your state income taxes or state sales taxes, whichever you choose. So the $40,000 cap covers all of those together, not just your property tax bill alone.
A couple of other things worth knowing.
You can only deduct property taxes in the year you actually paid them, not the year they were assessed. So if your tax bill shows up in December but you pay it in January, that deduction belongs to the following tax year.
Also, if you own a rental property, the rules are different. Property taxes on rental properties are fully deductible as a business expense, separate from the SALT rules that apply to your primary residence. That’s a significant benefit for investors and landlords.
For Michigan homeowners, property taxes vary depending on where you are. Whether you’re in Ann Arbor, Belleville, Ypsilanti, or Van Buren Township, the amount you’re paying in property taxes could make a real difference in whether itemizing makes sense for your situation.
The bottom line is this: real estate taxes are deductible, but only if you’re set up to take advantage of them. A conversation with a CPA or tax professional can help you figure out if itemizing is the right move for your specific situation.
If you’re thinking about buying, selling, or just want to understand how real estate fits into your bigger financial picture, I’m happy to walk you through it.
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