Every year home owners pay property tax, usually a significant chunk of change.

Good thing we can deduct the tax paid.

For 2008, this deduction is reported on line six of Federal Form Schedule A. Here you will include the taxes (state, local or foreign) you paid on real estate owned by you is are not used for business. Always try to itemize your deductions, which means figuring your allowable Schedule A deductions.

New and most likely unknown for 2008 and 2009: If you are unable to itemize, the standard deduction allowable is increased by either $500 ($1,000 if married filing jointly) or the amount of real property taxes paid—whichever is less. The IRS has a worksheet for you to use on page 35 of the 1040 instructions, or on the IRS web site (see Standard Deduction Worksheet, Line 40). 

Keep in mind, if you have received a refund or rebate for real estate taxes you paid, you must reduce your deduction by the amount you received.

If you and your spouse are filing separately and your spouse files an itemized return, you will have to itemize also. Therefore, you will need to put a check in box 39c and you must put your share of property tax (if any) on line six of Schedule A.

Be sure to check out the complete archive of Daily Deductions!