There are four types of deductible non–business taxes:
- State, local and foreign income taxes;
- Real estate taxes;
- Personal property taxes; and
- State and local general sales taxes, if you elect not to deduct state
and local income taxes.
To be deductible, the tax must be imposed on you and must have been paid
during your tax year. However, tables are available to determine your state
and local general sales tax amount. Refer to Form 1040, Schedule A&B Instructions, for more information. Taxes may be claimed
only as an itemized deduction on Form 1040, Schedule A (PDF).
State and local income taxes withheld from your wages during the year appear
on your Form W-2 (PDF). The following amounts are
also deductible:
- Any estimated taxes you paid to state or local governments during the
year, and
- Any prior year's state or local income tax you paid during the year.
Generally, you can take either a deduction or a tax credit for foreign
income taxes imposed on you by a foreign country or a United States possession.
For information regarding the foreign tax credit, refer to Topic 856.
As an employee, you can deduct mandatory contributions to state benefit funds
that provide protection against loss of wages. Refer to Publication 17 for
the states that have such funds.
Deductible real estate taxes are generally any state, local, or foreign
taxes on real property. They must be charged uniformly against all property
in the jurisdiction and must be based on the assessed value. Many states and
counties also impose local benefit taxes for improvements to property, such
as assessments for streets, sidewalks, and sewer lines. These taxes cannot
be deducted. However, you can increase the cost basis of your property by
the amount of the assessment. Refer to Publication 551, Basis of Assets,
for more information. Local benefits taxes are deductible if they are for
maintenance or repair, or interest charges related to those benefits.
If a portion of your monthly mortgage payment goes into an escrow account,
and periodically the lender pays your real estate taxes out of the account
to the local government, do not deduct the amount paid into the escrow account.
Only deduct the amount actually paid out of the escrow account during the
year to the taxing authority.
Deductible personal property taxes are those based only on the value of
personal property such as a boat or car. The tax must be charged to you on
a yearly basis, even if it is collected more than once a year or less than
once a year.
Taxes and fees you cannot deduct on Schedule A include Federal income taxes,
social security taxes, stamp taxes, or transfer taxes on the sale of property,
homeowner's association fees, estate and inheritance taxes and service charges
for water, sewer, or trash collection. Generally, sales taxes are not deductible
on Schedule A unless you elect to deduct them instead of your state and local
income taxes.
You may be subject to a limit on some of your itemized deductions including
nonbusiness taxes. Please refer to the Form 1040 Instructions for
the limitations based on the adjusted gross income.
For more information on nonbusiness deductions for taxes, refer to Form 1040 Instructions, or Publication 17.
