Securing a home involves a significant financial commitment that goes beyond just the cost of a mortgage. The financial burden can be especially high in states with high property taxes. For example, in 2022, homeowners in New Jersey had to pay a median property tax bill of $8,797, highlighting how steep these expenses can be. Buying a home in states like Florida and Texas, where property values have increased by up to 42% and 32%, respectively, over the past five years, also means paying significantly higher property taxes.
Owning a home also means shouldering the costs of homeowners insurance, maintenance, and repairs. While homeowners can deduct property taxes on their tax returns if they itemize, those in states with higher rates often can’t fully benefit due to a federal cap on state and local tax (SALT) deductions. This cap, set at $10,000 by the Tax Cuts and Jobs Act, was signed into law under Trump in 2017 and limits the total amount that can be deducted for property and state income taxes. The SALT covers sales taxes. Those who itemize their deductions can choose to deduct either their income taxes or sales taxes in addition to their property taxes, but not all three.
The cap has significant implications, especially for homeowners in states like New Jersey, where property taxes alone can approach or exceed this limit; before the SALT cap, there was previously no limit. The SALT cap has left some high-income filers with higher tax bills. For example, a homeowner with a $12,000 property tax bill cannot deduct the additional $2,000 of that amount on their federal tax return. Similarly, if another pays $8,000 in property taxes and $7,000 in state income taxes, they, too, face a deduction shortfall due to the SALT cap.
However, this limitation might be temporary. The Tax Cuts and Jobs Act’s provisions, including the SALT deduction cap, are set to expire after 2025. This expiration could open the door for homeowners in high-tax states to claim larger deductions starting in 2026, potentially easing the financial strain of property taxes.
The current SALT cap may not pose a significant issue for those living in states without income tax or with lower property taxes. Yet, for residents in higher-tax areas, the potential expiration of this cap could represent a significant financial reprieve.
Beyond the SALT deduction cap, homeowners also have the option to contest their property tax assessments. While the process varies by state, challenging an assessment involves proving that the tax assessor’s valuation of your home exceeds its actual market value. Challenging the assessment can be a viable strategy, particularly in a cooling real estate market where recent sales data may support a lower valuation. Successfully appealing a property tax bill requires solid evidence, such as recent sales of comparable homes in your area.
Big News for Homeowners: A Massive Tax Break May Be Coming in 2026
Given the current financial landscape, it’s crucial for prospective homeowners to evaluate their ability to afford the total costs associated with property ownership, irrespective of potential future changes in tax regulations. Relying on hypothetical tax deductions or legislative changes is risky and may lead to financial strain.
As the expiration of the SALT deduction cap looms, homeowners and potential buyers should remain vigilant and informed about legislative developments that could impact their financial planning. Nonetheless, the fundamental advice remains unchanged: ensure you are on solid financial footing before taking the plunge into homeownership, considering all current costs and obligations without banking on future tax benefits.
While the potential for increased tax deductions post-2025 offers a glimmer of hope for homeowners in high-tax states, it’s essential to base homeownership decisions on the current financial landscape. Careful planning, awareness of potential tax appeals, and a clear understanding of all homeownership costs are key to navigating the complexities of owning property in today’s economic environment.
