Many local agencies are set up to accept property tax payments online. When paying property taxes online, it is important to note some considerations that can affect your federal income tax return.
Though government agencies tend to be a bit slower adapting to technology than the private sector, many local agencies are set up to accept property tax payments online through their own websites or sometimes through an authorized third-party site. When paying property taxes online, it is important to note some considerations that can affect your federal income tax return.
It should come as no surprise that most local governments accepting online payment of property taxes accept major credit and debit cards. Some jurisdictions, such as Dallas County, Texas, utilize the Automated Clearing House network, usually referred to as an ACH payment. ACH payments are like electronic checks that allow the government agency to deduct the payment from your bank account.
The timing of your property tax payments can be extremely important when taking a deduction on your federal tax return. To claim a property tax deduction, the Internal Revenue Service requires that you actually make the payment during the same year you report the deduction. When filing your 2021 tax return in 2022, for example, you can only deduct the property taxes you paid on or between January 1, 2021 and December 31, 2021.
If you find yourself short on funds to pay your property taxes at the end of the year, you can always use a credit card and make the payment online. This way, you don’t have to wait until next year to take the property tax deduction, and in most cases you may make your credit card payments over time. However, high interest rates charged by credit card companies can wipe out any benefit you received by taking the deduction if you don’t pay off the card promptly.
If the sole reason you’re making the payment online is to take the property tax deduction, it’s a good idea to first ensure you’re eligible for the deduction. To take the deduction, you must be personally liable for the property tax. This means you can’t make the online property tax payment for someone else’s home and take the deduction yourself.
Moreover, your deduction may not include any amount that your local government charges for special improvements it makes to your property that the IRS refers to as a nondeductible assessment for local benefits. For example, if your county government requires payment for special improvements it makes to your property, such as for the construction of a sidewalk, but doesn’t require similar payments from most other residents in the jurisdiction, you may not include the payment in your property tax deduction.
The other issue you should consider before paying your property taxes online is that you must itemize your deductions in order to take the property tax deduction. Sometimes taking the standard deduction is more beneficial than itemizing your deductions. To illustrate, suppose you’re eligible for an $8,500 standard deduction, and an estimate of your itemized deductions (including property taxes) is less than $8,500. In this case, it makes sense to take the standard deduction in lieu of itemizing and deducting your online property tax payments. Therefore, there would be no tax benefit to paying your property taxes early.
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