IRS statistics indicate that about two thirds of taxpayers claim the standard deduction on their tax return each year. This means that they do not itemize, or list out, things like mortgage interest, real estate taxes, charitable contributions, or medical expenses on IRS form Schedule A.
If you’re one of these taxpayers and you claim the standard deduction amount this year, you could be missing out on a new deduction for real estate taxes that you paid in 2008. Starting this year, the IRS allows you to write off up to $1,000 of real estate taxes you paid on property you own that was not used for business purposes, even if you do not itemize any other deductions.
Keep in mind that if your real estate taxes were paid from an escrow account by your mortgage holder, you still paid them and qualify for the deduction. Also, if you bought or sold a home in 2008 the real estate taxes may have been pro-rated and paid at the closing, so don’t forget about taxes that you paid this way.
You can even claim this deduction even if you file the short form 1040A, but leave it to the IRS to make it tricky and easy to overlook. You claim this deduction by completing a new worksheet that recalculates your standard deduction amount and increases it by the amount of real estate taxes you paid in 2008, up to the limit.
You cannot claim this deduction if you file the 1040EZ form, so you will need to file either the short form 1040A or the long form 1040. Taxpayers in the 15% tax bracket who overlook a $1,000 deduction will cost themselves $150 in tax. Those in the 25% tax bracket will cost themselves $250 in tax – real money in today’s troubled economy.