Update on Deducting Real Estate Taxes
We continue to get questions regarding how much property taxes that a taxpayer can deduct on their tax return. This post will recap what farmers can deduct starting in 2018.
First, there is an overall $10,000 cap on deducting real estate taxes on your personal residence and any other personal real estate that you may own. This $10,000 cap also includes any personal income or sales tax. Here is an example:
Ben and Jane own a home in Cedar Falls, Iowa. Their real estate tax on the home is $3,500. They also pay $8,000 of Iowa state income tax. Total personal real estate tax and state income tax is $11,500. The maximum deduction allowed on Schedule A is $10,000.
For real estate taxes paid on farm land real estate, all of these taxes are 100% deductible. There is no $10,000 cap on these taxes. Here is an example:
Ben and Jane have a farm operation in Benton County, Iowa. Part of the farm land is held in an S corporation and part of the land is held by an LLC owned jointly by them and part is owned by them individually. The S corporation pays $12,500 of real estate tax, the LLC pays $10,000 and Ben and Jane pays $15,000 in real estate taxes. All of these real estate taxes are 100% deductible on each respective return. There is no limit on the deduction.
Conclusion – Only real estate taxes on your personal residence (or vacation home) are limited. All of the real estate taxes paid on farmland will be treated exactly the same as under the old law.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
What is land is held individually and income is reported on schedule F or 4835? Are real estate taxes deductible in full there?