New property tax deduction for homeowners

When you own an investment property, you can easily claim your property taxes as a business expense. With your personal residence, however, the rules are a bit different. If you itemize your federal deductions you can claim your actual property tax amount. On the other hand, if you use the standard deduction, you can not claim them. Until now. For 2008 and 2009, when claiming the standard deduction on federal income tax returns, the IRS is allowing homeowners to claim up to $500 in property taxes if single and $1000 if married filing jointly. This won’t apply to many homeowners, but if it does, looks like you’ll be saving a bit of extra money this year.

Here is the language taken directly from the IRS’s website:

Your standard deduction is increased by any state and local real estate taxes you paid in 2008, up to $500 ($1,000 if married filing jointly). The taxes must be state or local real estate taxes that would be deductible on Form 1040 (Schedule A) if you were itemizing your deductions. Taxes deductible in arriving at adjusted gross income, such as taxes on business real estate, and taxes on foreign real estate cannot be used to increase your standard deduction.