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George Saenz, the Bankrate.com Tax Talk columnist Limit on real estate tax deductions

Dear Tax Talk,
Is there a limit on the quantity of properties owned for which real estate taxes paid can be deducted on Form 1040 Schedule A?
-- John

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Dear John,
Real estate taxes are generally tax-deductible. If the taxes relate to a rental property, you would claim them on Schedule E against rental income. If they relate to unproductive property, such as vacant land or family homes, you can claim them on Schedule A.

While there is no actual limit on the number of properties or amount of taxes, you may not get any tax benefit if the dreaded alternative minimum tax, or AMT, kicks in. All taxes (real and personal property taxes and income or sales taxes) on Schedule A are not deductible for AMT. Rental property taxes on Schedule E do not affect your AMT.

If your taxes are creating AMT, your only alternative is to elect to capitalize the cost of these taxes to the property with which they relate. This will not affect the amount of federal taxes you pay in the current year, as the taxes are not giving you a benefit when you are subject to AMT.

You can elect to capitalize carrying charges separately for each property you have and for each type of carrying charge (such as taxes or interest). For unimproved and unproductive real property, your election is good for only one year.

To make the election to capitalize a carrying charge, write a statement identifying the charges you elect to capitalize. Attach it to your original tax return for the year the election is to be effective. When you sell the property, the capitalized charges will reduce your gain and will not affect your AMT.

Bankrate.com's corrections policy-- Posted: March 22, 2007
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