There are three types of deductible non-business taxes:

1. State, local and foreign income tax,
2. Real estate tax; and
3. 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:

1. Any estimated taxes you paid to state or local governments during the year,
2. Any payments you made with last year's state or local return; and
3. 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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