Are Real Estate Taxes Deductible?

A lot of Holland and West Michigan homebuyers ask me the same money saving question when we’re running numbers: “Are real estate taxes deductible?”The answer is yes... but only up to a limit, and the details matter more than most people realize.

Real estate taxes (your annual property taxes) can be deducted on your federal income tax return if you itemize your deductions. The IRS considers them a state/local tax, and they fall under something called the SALT deduction, short for “State And Local Taxes.”

Here’s the catch: The SALT deduction is capped at $10,000 per year.That includes all of your state income taxes, city taxes, and property taxes combined.

So let’s say you live in Holland, Zeeland, or Park Township and your property taxes are around $4,500 a year. If you also pay $6,000 in Michigan state income tax, you’ve already hit the $10,000 cap, meaning you can’t deduct anything above that number.

If your total combined taxes are below that limit, you can deduct the full amount you paid. That’s where homeowners can grab some real savings.

But here’s where people get mixed up:You can only deduct actual property taxes you paid that year. You can’t deduct:

• Special assessments for streets, sidewalks, or sewer upgrades• New construction assessments• Taxes on home improvements• HOA dues (those aren’t taxes at all)

Only the true, government-charged real estate taxes count.

Another thing buyers in Holland and West Michigan need to understand: your taxes change when you buy. Because of Michigan’s “uncapping” laws, the previous owner’s tax bill may not match what you will be paying next year. That doesn’t affect your tax deduction, but it does affect your budget, which is why I always calculate your post-purchase taxes upfront before you ever write an offer.

So yes, property taxes are deductible, but the value of that deduction depends on your tax situation, whether you itemize, and whether your total state/local taxes exceed the $10,000 SALT cap.

If you’re buying in Holland and want help estimating not just your taxes but also what your deductions might look like, I walk my clients through the numbers step-by-step. A clear plan always beats guesswork, especially when the IRS is involved.