Real Estate Taxes

You can deduct the real estate taxes you pay on property. However, you must deduct them in the year you pay them.

Ex: You received a January 2013 bill and prepaid it in December 2012. So, you can deduct that amount on your 2012 return.

Your mortgage lender might pay your real estate taxes from an escrow account. If so, they’ll send you a Form 1098. This form will report the amount of real estate taxes you paid. By law, you should receive your 1098 no later than Jan. 31, 2013. If you don't, contact your mortgage lender.

HUD statements also report real estate and property taxes. You receive this statement when you buy or sell property. The statement lists the taxes paid by both buyer and seller.

You can’t deduct as real estate taxes any special assessments charged by condo associations. These fees are considered condo fees. However, if the condo association sends you a statement, you can deduct property taxes paid with association fees. That statement should tell you the amount of property tax the paid fees covered.

Personal Property Taxes

You can deduct the tax you pay on personal property. Personal property tax -- also called an excise tax -- is based upon the value of the item. The excise tax is levied on property like cars and boats.

To deduct property taxes, all of these must apply:

• The tax is imposed on personal property.
• The tax must be ad valorem. This mean it’s substantially in proportion to the value of the personal property.
• The tax is imposed on an annual basis, even if collected more or less than once per year.

Ex: You receive an annual bill from your city for 2% of your car's assessed value. So, you can deduct the amount you paid. However, your town might send everyone a bill for $100, regardless of the car's value. If so, you can't deduct the amount on your taxes.

Claim as itemized deductions on Schedule A:

• Real estate taxes on line 6
• Personal property taxes on line 7

Taxes you deduct elsewhere on your return, like on Schedule E, don’t qualify for this deduction.