There are three types of deductible non-business taxes:
- State, local and foreign income tax,
- Real estate tax; and
- Personal property tax.
To be deductible the tax must be charged to you and must have been
paid during your tax year. Taxes may be claimed only as an itemized deduction
on Form 1040, Schedule A.
State and local income taxes withheld from your wages during the
year appear on your Form W-2. The following amounts are also deductible:
- Any estimated taxes you paid to state or local governments during
the year,
- Any payments you made with last year's state or local return; 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. 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.
Deductible real estate taxes are generally any state, local, or foreign
taxes on real property. They must be charged uniformly against all property
and must be based on property 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.
See Publication 551, Basis
of Assets, for more information. Local benefits 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 only those based 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 tax, sales tax, 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.
For more information on non-business deductions for taxes, see Form
1040 instructions or Publication
17. Forms and publications can be downloaded
from this site, or ordered by calling 1-800-829-3676.
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