maybe real dumb, I don't know...  I dont even know where to post this question.


If someone wants you accept an increase in your property taxes (for whatever reason), and says that since the property tax is 'tax-deductible', is that the same as saying that this tax increase is actually not an increase at all?

I'm figuring that when something is deductible from your federal taxes, that it is not free - rather than free, it's ultimate cost to you is reduced, but not totally eliminated.  And if that's true, how much is the increase?  But my brain hurts and I'm too confused by my own thinking about this that I have to ask 'if so' and how to compute the ultimate cost!  

It seems to me that that an increase in a local property tax that is deductible from your federal tax return is not truly a wash, that it is not truly a net increase of $0, but rather it is a net increase in your total spending of (1 minus (1 minus your federal tax rate)) times the increase in your local property tax.  Like it's the difference between deducting it from your final bill and deducting it from your income.

Maybe I'm all wrong?  


Thanks for any response!

First off, it's only deductible to the extent that your deductions are greater than the standard deduction. In my case my property taxes, mortgage interest, and state taxes are enough which means that my charitable deductions also become deductible.

Second, deductible just means that it lowers your federal tax bill by the percentage that represents your tax rate. For example, if instead of paying a $100 fee per year for trash removal, your town eliminates the fee and increase your property taxes by $100, then your federal tax bill may get lowered a little. I am in the 15% marginal bracket so my tax bill would be $15 less if it is included in my taxes vs. billed as a fee. People in a higher marginal bracket will get a bigger benefit and people in a lower bracket will get less - possible none.

Another Rick 

Another rick said it well... unless you are taxed under that AMT.  If you qualify for the AMT, all the property and income tax you paid is added back into your income and your total tax would remain the same to the Federal gov.  You would just pay the extra property tax.

 Unfortunately the tax system has so many caveats...  as noted above, if you have little deductions on schedule A such that you take the standard deduction, you have no tax deduction.
 

[quote user="sances"]If someone wants you accept an increase in your property taxes (for whatever reason), and says that since the property tax is 'tax-deductible', is that the same as saying that this tax increase is actually not an increase at all?[/quote]

The person who describes the tax increase in this way is used to talking to sheep. Many of the sheep in your town will accept the explanation, and go baaack to their busy lives.

The real effect for most of us is that the $100 real estate tax increase means we will pay $15 or $25 less in federal tax. But that still means we pay $85 or $75 in additional local tax.
 

[quote user="sances"]maybe real dumb, I don't know...  I dont even know where to post this question.


If someone wants you accept an increase in your property taxes (for whatever reason), and says that since the property tax is 'tax-deductible', is that the same as saying that this tax increase is actually not an increase at all?

I'm figuring that when something is deductible from your federal taxes, that it is not free - rather than free, it's ultimate cost to you is reduced, but not totally eliminated.  And if that's true, how much is the increase?  But my brain hurts and I'm too confused by my own thinking about this that I have to ask 'if so' and how to compute the ultimate cost!  

It seems to me that that an increase in a local property tax that is deductible from your federal tax return is not truly a wash, that it is not truly a net increase of $0, but rather it is a net increase in your total spending of (1 minus (1 minus your federal tax rate)) times the increase in your local property tax.  Like it's the difference between deducting it from your final bill and deducting it from your income.

Maybe I'm all wrong?  


Thanks for any response!

[/quote]

 

Not an answer to your question, but a suggestion if you are not able to itemize. Depending upon where you live, try and research comparable sales to see if you can submit an application to the Real Estate Tax Board of Revision to lower your property taxes based on recent sales in your area. I was able to do this and was approved this month.