If you’re itemizing deductions on Schedule A for the 2025 tax year, property (real estate) taxes are a key component—but there are meaningful limits and interactions to watch between property tax and mortgage interest deductions.
🏡 Property Tax (Real Estate Tax) Deduction Rules
You can deduct state and local property taxes you pay on real estate you own—including your main home, second home, and land.
- Property taxes are part of the **SALT deduction** cap.
- For 2025, the **One Big Beautiful Bill Act** temporarily increases the SALT cap from $10,000 to **$40,000** for taxpayers with MAGI ≤ $500,000. The cap phases down gradually above that threshold and reverts to $10,000 (or $5,000 MFS) by 2030 :contentReference[oaicite:1]{index=1}.
- This includes property taxes, state/local income or sales taxes combined—not just property taxes alone.
🔢 Coordination with Mortgage Interest Deduction
Mortgage interest and property taxes are reported separately on Schedule A—but they interact indirectly through the itemizing decision:
- You must **itemize** to claim either deduction; homeowners with relatively small mortgage interest or SALT taxes may still benefit more from the **standard deduction** unless combined totals exceed it.
- SALT cap expansion in 2025 increases incentive to itemize if property/income taxes exceed $40,000 (subject to MAGI limits).
- Example: If your mortgage interest deduction is modest but your property taxes alone total $25,000, you may want to itemize—especially since SALT cap allows all $25,000 under the expanded $40,000 limit.
📊 Example Scenario
Imagine:
- You pay $22,000 in property taxes annually.
- Your state income taxes are $5,000—total SALT = $27,000.
- Your mortgage interest deduction runs $8,000.
If your AGI ≤ $500,000, you can deduct up to the full $27,000 SALT plus $8,000 in mortgage interest; total $35,000 exceeds the standard deduction thresholds (e.g. $31,500 for married filing jointly in 2025), making itemizing advantageous.
📌 Key Considerations
- Property taxes fall under the SALT cap; higher caps in 2025–2029 make itemizing more compelling in high-tax states.
- Mortgage interest limits remain based on loan origination date and amount:
- Loans closed after December 15, 2017 are capped at **$750,000** of acquisition debt ($375,000 if MFS).
- Mortgages taken out before Dec 16, 2017 remain capped at **$1,000,000** ($500,000 if MFS) and are grandfathered. Refinancing under those terms generally preserves the limit so long as you don’t increase principal :contentReference[oaicite:2]{index=2}.
- Interest on home equity loans or HELOCs is deductible through 2025 only if the proceeds were used to buy, build, or substantially improve your home :contentReference[oaicite:3]{index=3}.
✅ Bottom Line
If you live in a high-tax state, paid substantial property taxes in 2025, or have sizable mortgage interest, itemizing may offer significant tax benefits—especially given the temporarily expanded SALT cap. Just be sure your combined deductions exceed the standard deduction threshold for your filing status.
Need help estimating whether itemizing makes sense in your situation? Share your property tax, mortgage interest, and filing status—and we can walk through a comparison.
