Is property tax a business expense?

What is property tax in business?

Property tax is a levy imposed by local governments on real estate owned by a business. It’s based on the property’s assessed value and helps fund public services. When the property is used for business operations rather than personal use, the tax is deductible as an ordinary and necessary business expense.

How to categorize property tax expenses

• Record as an Operating Expense in your income statement.
• Use a “Property Tax Expense” or “Taxes and Licenses” account in your chart of accounts.
• If you own the building, include property tax as part of Overhead or Occupancy Costs.
• For leased spaces, property tax may be passed through the landlord — record it as part of Rent or Lease Expenses.
• Exclude property taxes related to personal property or non-business real estate.

Examples of property tax expenses

• Annual real estate taxes for office buildings or retail locations.
• Property taxes on warehouses or factories.
• Taxes billed through a triple-net (NNN) lease agreement.
• Business-owned land or vacant lots held for future use.
• Equipment or improvements subject to local property assessments.

Tax implications for property tax expenses

• Property taxes on business property are fully tax-deductible as operating expenses.
• Property taxes on personal residences or personal-use property are not deductible for business purposes.
• For mixed-use properties (e.g., home offices), only the business-use portion of property tax is deductible.
• Property taxes paid in advance should be expensed over the period they apply to.
• Keep tax bills, payment confirmations, and property assessment records for documentation.
• Deduct property taxes on Schedule C (for sole proprietors) or as a business expense on the company’s return.