If you itemize deductions on your federal tax return, you may be able to claim a deduction for the personal property taxes you've paid.
One method that states can use to raise revenue is to charge you a tax on your personal property. This type of tax is separate, and may be in addition, to the state and local taxes you pay on your real estate. However, if you itemize deductions on your federal return, you may be eligible to claim a deduction for some or all of the personal property taxes you pay.
What is a personal property tax?
Since all personal property taxes are state imposed, each jurisdiction may include different types of property in the tax assessment. Additionally, these taxes are often imposed by local governments, such as cities and counties, making the rules even less uniform across the country.
In Duval County, Florida, personal property taxes apply to all tangible property you own that produces income. This not only includes all furniture, tools and equipment you use in a business, but also the furniture inside your rental homes. If you own this type of property, the county requires you to file an annual tax return to report the tax you owe.
Filing personal property tax returns
Each state, or even each local jurisdiction such as a county, will have its own specific form you must fill out to report your personal property tax.
For example, in Duval County, the jurisdiction requires you to report all property on its tax form and provide the fair market value and cost of each item. When reporting values, the county provides tables that you can use to estimate value based on the age and useful life of the property. Many jurisdictions will exempt a certain amount of your property from the tax each year.
When you can deduct personal property tax
If you end up paying personal property taxes to your local government, the IRS allows you to claim a deduction for it on your federal tax return. However, the IRS requires you to satisfy certain requirements, regardless of how your government classifies the tax.
To claim the deduction, the tax must only apply to personal property you own, be based on its value and be charged on an annual basis, irrespective of when the government collects it from you. Therefore, if the state only charges the tax at the time you purchase the property then it does not meet the IRS definition of a deductible personal property tax.
How to deduct personal property taxes
Paying a personal property tax is not always enough to claim the deduction. In addition to satisfying the IRS requirements, you must also be eligible to itemize, since this is the only way you can claim the deduction.
To determine whether you are eligible to itemize, simply add up all of your eligible itemized deductions for the year, such as medical expenses, charitable contributions and mortgage interest payments. If the total is more than the standard deduction you can claim for your filing status, then go ahead and itemize and take a deduction for your personal property tax payments.
Beginning in 2018, deductions for state and local taxes, including personal property taxes, are capped at $10,000 per tax return. Prior to 2018, there is not a cap for these deductions, although large amounts of these deductions can cause you to be subject to the Alternative Minimum Tax and therefor offset a large deduction.