For a lot of homeowners, property taxes can feel oppressive, but when you’re a rental property owner, there’s a silver lining. Those property taxes that you’re paying on your Palm Desert rental can be deducted on your federal tax return, limiting your exposure and your tax liability and saving you some of your income.
We’re talking about property tax implications today, and it’s coming from our perspective as professional Palm Desert property managers. It’s always a good idea to check in with your tax attorney, CPA, or accountant before you make any tax moves.
Every investor’s tax situation is also completely unique. You’ll need some personalized advice and customized direction. But from a general standpoint, here’s what you need to know about your rental property and its property taxes.
Property Taxes in Palm Desert
Palm Desert is in California’s Riverside County, and the tax rate here has ranged from between 1.25 percent and 1.32 percent over the last few years, depending on supplements and assessments and within the restrictions imposed by Proposition 13. California’s Proposition 13 caps the growth of a property’s assessed value at no more than 2 percent a year unless the market value of a property falls lower.
Property taxes here are also subject to Proposition 8, which says that qualifying properties can receive a temporary reduction in their taxable assessed value when the market value of those properties decline. The local tax assessor is required to register the lower of either the property's Factored-Base-Year Value (established under Prop 13) or its market value as of the lien date (January 1).
This reduction is temporary and the assessor is required to review the market value of the property each year after the reduction until the Prop 13 value is less than or equal to the market value.
We’ll always expect the market value of the property to rise again, and at that point, the assessed value and resulting property taxes may increase in proportion to the annual increase in market value.
Investors need to understand that this increase can be more than the annual 2 percent allowed under Prop 13 until the market value climbs back up to the annually adjusted Prop 13 cap. Once the Prop 13 cap is reached, then the assessment cannot be increased more than 2% annually.
This is a lot to keep straight, and that’s why we believe a good tax professional is a valuable partner to have when you’re investing in Palm Desert real estate. Ask us for a referral if you aren’t working with someone already. Or, talk directly to the Riverside County Assessor. The tax office can be helpful with applying for a Proposition 8 adjustment if you believe you qualify.
Leveraging Property Tax Deductions for Palm Desert Rental Properties
There are the taxes you’re required to pay and there are the tax benefits you’re able to leverage when you’re renting out rental homes in Palm Desert.
Always take advantage of every deduction to which you are entitled. This will allow you to reduce the overall taxes you pay and it will also give you the opportunity to increase your return on investment (ROI) over the long term.
Most California rental property owners can deduct the property taxes they’ve paid from their taxable income. This is important because you are not only paying property taxes on your investments, you’re also paying taxes on the money you collect in rent from the tenants living in those properties. Right now, the maximum amount of your property tax deduction is $10,000. If you’ve paid more than that in property taxes, you’re only eligible to deduct the first $10,000 of taxes you’ve paid.
Itemized vs. Standard Deductions
In order for real estate investors to take advantage of this deduction, you’ll need to take the itemized option on your tax form instead of the standard deduction. Work with your tax professional to get an idea of whether that standard deduction would be more beneficial and cancel out the savings you’d experience by deducting your property taxes.
Why is this noteworthy? Because in 2025, the standard deduction is $15,000. When you take the standard deduction, you get a $15,000 tax break no matter what your business expenses were over the year and regardless of how much you paid in property taxes and other deductible expenses. Most people without real estate investments and with regular employment will take that standard deduction.
Real estate investors often have more complicated finances and need the extra deductions that come with the itemized option. But, this will depend on you and your financial situation and your other deductions. In order to really leverage the $10,000 limit on property tax deductions, you’ll need to find nearly $5,000 more in itemized deductions.
Additional Deductions for Palm Desert Investors
Luckily, finding those additional itemized deductions is usually easy to do when you’re renting out properties. Real estate investors can also deduct:
- Any interest being paid on the mortgage you may have on your rental property.
- Depreciation at your investment, which can be deducted in accordance with the estimated lifespan of your property. The IRS has put this at 27.5 years for residential rental homes.
- Operating expenses associated with the property or properties you are renting out. This includes maintenance expenses, marketing and advertising costs, travel to and from your rental property, and even home office expenses. Professional services can also be deducted, whether we’re talking about Palm Desert property management services, insurance broker fees, real estate agent commissions, or legal fees.
Property taxes are a small part of the tax benefits that come with owning rental properties. We work with investors and landlords to ensure that all of the accounting and financial reporting associated with investment properties is organized, accurate, and up to date. This makes it easier for you to file at tax time, taking advantage of all your tax benefits.
Let’s talk about the various ways in which you can save money on your Palm Desert rental property. We’ll help you position yourself and your property for maximum tax savings and income potential. Contact us at Xepco Properties.
