Real Estate Taxes
Homeowners can deduct property taxes and mortgage interest as an itemized deduction. Homeowners who don't have enough itemized deductions to exceed their standard deduction are better off using their standard deduction as that will result in the lowest federal income tax.
The Housing Assistance Tax Act of 2008 allows homeowners to claim an additional standard deduction for property tax if the taxpayer does not itemize. The additional amount is limited to $500 or $1,000 for joint filers.
Amount of the Additional Standard Deduction for Property Taxes
The amount is claimed as an additional amount on top of their standard deduction.
The additional amount that can be claimed is the lower of the following two figures:
the amount of real estate property taxes paid during the year to state and local governments; or
$500 ($1,000 for married taxpayers filing a joint tax return).
When to Claim the Additional Standard Deduction for Property Taxes
This additional standard deduction applies to tax years 2008 and 2009 only. This deduction is not available for any other tax year.
Standard Deduction Amounts for 2008
For 2008, here are the standard deduction amounts:
Head of Household: $8,000
Married Filing Joint: $10,900
Married Filing Separately: $5,450
Qualifying Widow/Widower: $10,900
Additional Amount if Blind: $1,050
Additional Amount if age 65 or older: $1,050
Additional Amount for property taxes: $500 or $1,000 for married filing jointly
* Dependents must calculate their standard deduction using an IRS Worksheet.
Planning Tips for the Additional Standard Deduction for Property Taxes
This additional standard deduction will likely work more efficiently for taxpayers who have no mortgage interest to deduct, or whose total itemized deductions do not exceed their standard deduction.
For example, married homeowners who are both over age 65 and who file a joint return would have a standard deduction amount of $14,000, which breaks down as follows:
$10,900 standard deduction for married filing jointly, plus
$1,050 for taxpayers age 65 and older for the husband, plus
$1,050 for taxpayers age 65 and older for the wife, plus
$1,000 additional standard deduction for property taxes for married couples.
Let's assume further they paid $10,000 in property taxes, and have no other itemized deductions, such as for mortgage interest or charity. In this case, their standard deduction is higher than their itemized deductions. Taking the standard deduction in this case would result in a lower overall tax than if they itemized.