When should I pay my Real Estate Taxes?

by | Feb 10, 2025 | Resources

The tax year in which you should pay your real estate taxes depends on which tax year you want to claim the related federal or state tax benefit. Generally, you claim the real estate tax expense in the year they are paid.

General Guidelines:

  1. If you pay the taxes in 2024, you will report them on your 2024 tax return (filed in 2025).
  2. If you wait to pay them in 2025, you will report them on your 2025 tax return (filed in 2026).

Key Points to Consider:

  1. Prepaid Taxes: If you pay taxes for a future year (e.g., 2025 taxes paid in 2024), you typically cannot deduct them until the year they apply (2025).
  2. State-Specific Deadlines: Some states allow partial or advanced payments, and the timing of these payments could affect the deduction year.
  3. $10,000 SALT Deduction Cap: The deduction for state and local taxes (SALT), including real estate taxes, is capped at $10,000 per year ($5,000 if married filing separately). If you’ve already reached this limit, additional payments won’t provide a federal tax deduction.
  4. Taxes funded with money from escrow (collected by a mortgage lender throughout the year) are reported in the year paid to the taxing authority, not in the year received by the taxpayer.  For example, a taxpayer would report the real estate tax payment on their 2025 tax return if they remitted their payment to the city in 2025, even though they received a check from escrow in 2024.
  5. Be sure to understand your state’s benefit or lack thereof for paying real estate taxes.  Although you may not benefit on the federal tax return, you may benefit on the state tax return; and that benefit could impact the timing of your payment.  For example, Wisconsin provides an annual tax credit for real estate taxes paid during the year, regardless of whether a taxpayer claims the real estate tax payment on their federal tax return.

Recommendation:

Check your property tax bill to confirm which year it applies to and plan your payment timing based on your tax situation. If you’re unsure, consult a tax professional to determine the optimal timing for your payment and deduction.