Deductible non-business taxes come in four different types:
- State, local and foreign income taxes
- State, local and foreign real estate taxes
- State, and local personal property taxes
- State and local general sales taxes
Taxes must have been paid during the tax year and ca only be claimed as an itemized deduction, using Schedule A of a Form 1040.
State and local taxes are listed on a Form W-2, which is received from your employer. You can chose to deduct local sales taxes as opposed to income tax, but you can only deduct one. Sales tax is deducted by using either the actual expense amount, or by using set sales tax tables. You are able to deduct and estimated taxes paid to state and local governments or the amount you paid in a prior yeas state or local tax during the current tax year.
If you paid taxes to a foreign country or U.S. possession, you can either take a deduction or a credit for the tax amount paid. Employees are eligible to deduct monies paid on a mandatory basis to a benefit fund that protects against lost wages.
Real estate taxes are deductible provided they are on real property levied for the general public. The charge must be similar to like rates in the same jurisdiction on real property. Some states and counties charge taxes for the benefit of sidewalk, street, and sewer maintenance, and these taxes are not deductible. You are able to increase the cost basis of your home based on these taxes though.
Monthly mortgage payments that are part of an escrow account which is used to pay real estate taxes shouldn’t be deducted unless you deduct the actual amount you pay from the escrow into the tax.
Personal property taxes, such as those imposed on vehicles, are only deductible if they are they are charged to you yearly, and can be collected on any schedule.
Taxes that are not deductible on a Schedule A include:
- Social Security taxes
- Homeowner’s association fees
- Transfer taxes on property sales
- Federal income taxes
- Estate or inheritance tax
- Service charges for maintenance, trash collection, or sewer costs
Some deductions may be subject to a phase out and limitations based on your adjusted gross income.
