Homeowners bear the important responsibility of paying property taxes, but these can offer significant tax advantages when filing returns. To optimize your financial benefits, it's crucial to understand how property taxes influence your tax return, whether you're aiming to lower your federal taxable income or benefit from Wisconsin’s property tax credits.
Federal Tax Implications of Property Taxes
If you itemize deductions, property taxes are deductible on your federal income tax return. This is part of the State and Local Tax (SALT) deduction, which lets taxpayers deduct specific taxes paid to state and local governments.
Key Points to Consider
Itemizing vs. Standard Deduction: To deduct property taxes, you need to itemize deductions instead of opting for the standard deduction.
For 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly.
For 2025, these amounts rise to $15,000 for single filers and $30,000 for married couples filing jointly.
If your total itemized deductions, including property taxes, mortgage interest, and other eligible expenses, surpass the standard deduction for your filing year, itemizing could be beneficial.
What Can Be Included to Itemize Your Deductions: Here’s a list of common expenses that can be aggregated to decide if itemizing is worthwhile:
Property Taxes (subject to the SALT cap).
State and Local Income Taxes or Sales Taxes (whichever is higher, also subject to the SALT cap).
Mortgage Interest (on loans up to $750,000 for homes purchased after December 15, 2017).
Medical and Dental Expenses (only amounts exceeding 7.5% of your adjusted gross income).
Charitable Contributions (up to 60% of your adjusted gross income for cash donations).
Casualty and Theft Losses (if from a federally declared disaster).
Investment Interest Expense (up to the amount of your net investment income).
Combining these deductions will help determine if the total surpasses the standard deduction for your filing status, making itemizing advantageous.
SALT Deduction Limit: The SALT deduction is capped at $10,000 ($5,000 for married filing separately). This cap applies to the combined total of state and local property taxes and either income or sales taxes.
Prepaid Property Taxes: The IRS permits you to deduct property taxes in the year they are paid. If you prepay taxes for a future year, they must still be deducted in the year of payment.
Wisconsin Property Tax Credit
Beyond federal deductions, Wisconsin homeowners can utilize the Wisconsin Property Tax Credit, a program intended to offer relief to eligible residents.
Wisconsin Property Tax Credit
This nonrefundable credit is accessible to Wisconsin homeowners who pay property taxes on their primary residence. It directly decreases your Wisconsin state income tax liability.
Key Details About the Credit:
The maximum credit is $300.
Only property taxes paid on your principal residence qualify for the credit. Secondary homes, vacation homes, or rental properties do not qualify.
To claim the full $300, you must have paid at least $2,500 in property taxes during the tax year.
If your property taxes are less than $2,500, you can still qualify for a partial credit. The credit is calculated as 12% of the property taxes paid, up to a maximum of $300.
Final Thoughts
Property taxes are a considerable expense, but federal deductions and state credits can help lessen the financial load. By understanding what can be itemized, such as property taxes, mortgage interest, and charitable contributions, you can decide if itemizing is suitable for you. Wisconsin’s Property Tax Credit further cuts costs for homeowners, but only applies to your principal residence and requires a minimum payment of $2,500 to claim the maximum benefit.
To optimize your savings, maintain accurate records of all eligible expenses and consult a tax professional to ensure you're taking full advantage of every deduction and credit available.