Understanding Property Tax Deductions and How to Claim Them

There are options available for both buyers and sellers.

What Is a Property Tax Deduction?

A property tax deduction is an amount exempted from personal income tax (PIT). In some cases, the tax authority may refund taxes already paid.

You can claim this deduction when buying or selling property. We will explore each scenario.

How to Claim a Property Tax Deduction When Buying Real Estate

What Is the Deduction?

This deduction can provide financial benefits up to $3,500 (sometimes even more!). The amount may increase if you have a mortgage. Let’s break it down.

You can claim this deduction if you purchased:

• a house, apartment, room, or a share in these properties;
• a land plot for building a house or a share of such a plot;
• a land plot where the purchased house is located, or a share of it.

Here’s how it works: you buy one of the above properties and incur expenses. The government compensates part of these costs, not by sending money directly, but by allowing you to reduce your taxable income by the purchase amount (up to $27,000 equivalent).

For example, if you buy an apartment for $20,000, you don’t pay PIT (usually 13%) on that amount, saving you $2,600. If the apartment costs $27,000 or more, the maximum deduction remains $3,500. For married couples, each spouse can claim this deduction, doubling the benefit to $7,000.

You can apply this deduction to multiple property purchases. So, if you claimed a deduction for a $20,000 apartment, you can later buy another property and claim the remaining $7,000. However, purchases made before 2014 may be restricted to one property regardless of the amount.

If you bought property with a mortgage, you can also claim a deduction on the interest paid. The maximum interest deduction is based on $40,000, allowing you to save up to $5,200 in taxes. For spouses, this doubles, but this deduction applies only to one property and cannot be transferred.

Who Can Claim a Property Tax Deduction When Buying Real Estate?

Since this deduction is linked to PIT, only those who pay this tax at 13% can claim it. Non-residents (those spending over 183 days abroad annually), self-employed individuals, sole proprietors, or those paid under informal arrangements cannot benefit.

Additionally, the deduction does not apply to transactions between related parties or employer-employee deals to prevent manipulation of prices. Government subsidies or maternity capital used in the purchase cannot be included in the deduction; only your personal expenses count.

When Can You Claim the Property Tax Deduction?

There are two main ways:

1. Through your employer: notify the payroll department to reduce PIT withholding until your deduction limit is reached.
2. Through the tax authority: file an annual tax return or submit a simplified application to get a refund of PIT paid the previous year.

If you buy ready-to-move-in property, you can claim through your employer immediately after purchase. For a refund via the tax office, you must wait until the next calendar year. There are no restrictions on submission dates.

For properties under construction, the deduction is available only after you sign the acceptance certificate with the developer and the property is registered in the Unified State Real Estate Registry (USRR). For land plots, the house must be registered as residential first.

If you have both purchase and mortgage interest deductions, it’s usually best to claim the purchase deduction first, then the interest deduction, as total refunds cannot exceed your PIT paid.

Required Documents

Income Statement

Obtainable from your employer's payroll department. If filing annually through the tax authority, wait until they upload it by March 1. It will be accessible in your personal online account.

Property Ownership Proof

Prepare the sales contract, USRR extract (instructions available online), and acceptance certificate if applicable.

Proof of Expenses

This can be a receipt from the seller, a cash register receipt, or a bank statement showing payment transfers. For house construction, contracts with contractors and receipts for building materials are needed.

For mortgage interest deductions, obtain a certificate from the bank showing how much interest you have paid.

Spousal Deduction Allocation Statement

Needed only if married. If the property is worth more than $54,000, this statement is optional. Otherwise, spouses must decide how to split the deduction, which can impact refund timelines.

For example, if the property costs $27,000, the maximum deduction is $3,500. If only one spouse claims it with a monthly salary of $700 before taxes, they may need to file tax returns for three years. If both spouses claim the deduction, refunds can be quicker.

This is important if you plan to prepay your mortgage early to maximize interest savings. Consider different scenarios to find the best option.

How to Claim the Deduction Through the Tax Authority

Submit a 3-NDFL tax declaration. You can do this in person, by mail, or most conveniently online via the tax authority’s website.

1. Log in to your personal account.

Login options include:

• Username and password obtained from the tax office with ID verification.
• Qualified electronic signature (if available).
• Credentials from the government services portal, which is the easiest and most recommended method. If you don’t have an account, create one.

2. Obtain an enhanced non-qualified electronic signature if you don’t have one.

This can be done on the website by clicking your name at the top, then sliding to 'Get E-Signature'. Choose where to store the key: your computer or a secure tax service system.

3. Fill out and submit the 3-NDFL declaration.

Navigate to 'Life Situations' → 'Submit 3-NDFL Declaration'. The form includes helpful tooltips for each field.

Specify your tax office (usually auto-filled), the tax year, and confirm your residency status (must be resident to claim).

Report your income sources. If data is available online, it will auto-fill; otherwise, add manually using your income statement.

Select the property tax deduction option.

Choose the property, enter your expenses, and indicate if you have claimed deductions before.

You may provide your bank details to receive the refund immediately or skip this step and do it later.

Upload scanned documents and confirm submission with your electronic signature.

4. Monitor notifications from the tax authority.

Your declaration will be reviewed within one month, but if selected for a desk audit, the process may take up to three months, plus up to a month for the refund transfer.

5. Complete the refund application if not done earlier.

On the main page, select 'Income and Deductions', then 'Fill Application', and enter your bank details. The refund period starts from the application date, not the audit completion.

How to Claim the Deduction Through Your Employer

To stop PIT withholding temporarily, submit a statement to your employer along with a certificate from the tax office confirming your right to the deduction. This certificate can be obtained online.

Go to 'Life Situations' → 'Request Certificates and Other Documents' → 'Get Certificate Confirming Right to Property Deduction'.

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