Q. What are last minute property tax deductions I can make for my 2020 federal tax return in the U.S.?
A. For homeowners, property-related income tax deductions are limited.
Former President Donald Trump’s Tax Cuts and Jobs Act of 2017 reduced the amount of state-and-local taxes filers can deduct, according to Harvey Bezozi, a CPA and president of the Boca Raton, Florida-based company Your Financial Wizard.
“Before the Tax Cuts and Jobs Act, homeowners were able to deduct on their personal tax returns the property taxes paid for their personal residences,” he said. “[It] significantly reduced this deduction, along with the deduction for state-and-local income taxes withheld from wages, and now limits these combined deductions to a cap of $10,000.”
Politicians from states with high property taxes such as New Jersey, Illinois and California have made several attempts to work around the cap or get it repealed, but to no avail. It is set to expire at the end of 2025.
For investors, there are more options, Mr. Bezozi said.
“Rental property owners…can deduct a variety of business expenses against rental income from their properties,” he explained.
That includes everything from advertising for tenants to cleaning, maintenance and repairs, plus expenses like insurance, legal and other fees, mortgage interest and real estate taxes.
Depreciation of a rental building can also be deducted, Mr. Bezozi noted. Owners can deduct the cost of the building over 27.5 years, which can lead to tax savings.
In addition, if a rental property operated at a loss in 2020, there could be further deductions.
“If a property generates a net loss, there are rules to follow regarding whether the loss is currently deductible on the owner’s tax return, or if it must be suspended until the property is sold sometime in the future,” Mr. Bezozi explained.
These passive activity loss, or PAL, guidelines are subject to an investor’s passive income, but there are exceptions. It’s best to consult a tax expert to help navigate these rules.
This article first appeared on Mansion Global.