Most taxes are only deductible to taxpayers that itemize and file a Schedule A.  The only taxes available for deduction “above the line” for non itemizing taxpayers are those attributable to a trade or business, for the production of rental income, or one-half any self-employment taxes imposed.  The remaining deductible taxes are taken on Schedule A, and they include:

            State and local taxes are deductible in the year in which they are paid or withheld.  The most common occurrence of this deduction is state taxes withheld or state estimates paid throughout the year.  Foreign taxes can also be deducted or credited, but not if the income is exempt from U.S. income tax.

            State, local, and foreign real estate taxes are deductible on Schedule A given they meet two tests:

1)      The tax is based on the value of the property, and

2)      The tax is charged across the jurisdiction.

These tests are commonly met on real estate taxes paid in the Unites States. 

            These taxes are deductible if:

1)      They are based on the value of the property,

2)      The tax is charged annually, and

3)      Is imposed upon personal property.

Many times the actual amount paid is more than the amount deductible, which is solely the amount based on the value of the property.  Personal property taxes are most often seen on tax payments for vehicles, but can also include boats and RV’s.

Sales taxes are no longer available as a deduction.  In 2005 and prior, these could be deducted in place of state income taxes if the sales tax paid generated a larger deduction.  However, Congress has not extended this option beyond 2005.

Please consult our tax professionals for assistance on this or any other matters.