Are City Property Taxes Deductible on Your Federal Tax Return?

One of the categories of deductible taxes for your federal income tax return is state and local property taxes. However, just because your city charges you a fee because you own a car, boat or other property doesn't mean it qualifies for the deduction. If it does, you can use it to save a few more dollars on your taxes.

Qualifying Property Taxes

Qualifying city property taxes must be based on the value of your personal property rather than being a flat rate. For example, if a city charges every car a $50 fee regardless of how much it's worth, you can't deduct that as a personal property tax. In addition, the tax has to be charged on an annual basis, but you may pay it less than once per year. Your receipt should show you whether the fee is based on the value of your property or a flat fee. If part is based on value and part is a flat fee, you can only deduct the portion based on the value of the car.

No Service Taxes

You cannot include taxes paid for services as a city property tax deduction on your income taxes. For example, if you are charged for sewer fees or garbage collection fees, those aren't included in the property taxes deduction. Similarly, if you pay a local benefit tax that goes toward sidewalks or streets, those costs aren't deductible, either.

Only For Itemizers

You can only deduct your city property taxes if you itemize your income tax deductions. When you itemize, you replace your standard deduction with the total of your itemized deductions. As a result, it only makes sense to claim your personal property taxes if all of your itemized deductions exceed your standard deduction. Other itemized deductions include state and local income taxes, gifts to charity, medical expenses and mortgage interest. The value of the standard deduction depends on your filing status and adjusts annually with inflation.

Tax Reporting

Report the amount of city taxes paid on line 7 of Schedule A when you file your taxes. This amount is added to your other deductible taxes and the total gets reported on line 9. Then, your totals for each of the different categories of itemized deductions is combined and the total goes on line 29 of Schedule A and line 40 of Form 1040, replacing your standard deduction.

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