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Deductible Taxes


Which Taxes are deductible?

Real Estate Taxes

(state, local and foreign taxes)

  • The taxpayer must be legally obligated to pay in order to deduct the taxes.
  • Prorate taxes in the year of sale/purchase.
  • Taxes paid under protest are deductible. Subsequent recovery is included in gross income.
  • Real Estate taxes do not include street, sewer, and sidewalk assessment taxes.
  • Taxes paid through an escrow impound account are deductible when paid to the taxing authority.
  • Foreign Real Estate taxes paid are only deductible for real estate held as an investment.
  • Real Estate taxes on land held for appreciation may be capitalized or deducted at the option of the taxpayer.

Income Taxes

(state, local and foreign taxes)

  • Estimated taxes paid during the year are deductible.
  • Withheld taxes from paychecks during the year are deductible.
  • Assessments paid during the year for prior year’s tax are deductible.
  • Refunds are an item of gross income (if the tax was deducted in a prior year) and should not be netted against the itemized deduction.

Personal Property Taxes

(state and local taxes)

Personal property taxes are deductible if the tax is imposed on a yearly basis and is based on the assessed value of the property. Taxes not based on the value of the property are not deductible.

Sales Tax

(state and local general sales taxes)

  • You have the option of deducting state and local income taxes or state and local sales tax. You cannot deduct both.
  • To claim the sales tax deduction you can either add up all sales tax paid for the year (if you have the receipts) or you can claim a standard amount based on your state and income level.

Non-Deductible Taxes

  • Federal income tax
  • Social Security tax
  • Stamps
  • Transfer of property tax
  • Estate and inheritance tax
  • Water, sewer or trash collection
  • Vehicle licensing fees based on vehicle weight
  • Rental Property Taxes (on Schedule E)
  • Business Taxes (on Schedule C)

Forms

Schedule C
Schedule E

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