Limit on real estate tax deductions
Is there a limit on the quantity of properties owned for which real estate taxes paid can be deducted on Form 1040 Schedule A?
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.
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
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.