A taxpayer can elect to deduct either state and local sales
taxes or state and local income taxes, but not both.
State and Local Income Taxes
Includes the following:
• Withholding
reported on 2013 Forms W-2, W-2G, 1099-G, 1099-R, and 1099-MISC.
• Taxes
paid in 2013 for a prior year, such as the balance due paid when filing the
2012 state income tax return or a balance due when amending a prior year state
income tax return.
• State
and local estimated tax payments made during 2013, including the prior year
refund credited to 2013, and prior year estimated payments made during 2013. Example: The fourth quarter 2012
estimate paid in January 2013.
• Mandatory
contributions made to the California, New Jersey, or New York Nonoccupational
Disability Funds, the Rhode Island Temporary Disability Benefit Fund, the New
Jersey, Pennsylvania, or Alaska Unemployment Compensation Funds, or the
Washington State Supplemental Workmen’s Compensation Fund.
State and Local General Sales Taxes
There are two methods to figure
the sales tax deduction.
1) Actual taxes paid. The actual taxes
paid (from receipts, invoices, etc.) but only for purchases where the tax rate
is the same as the general sales tax rate. For selective sales taxes on food,
clothing, medical supplies, and motor vehicles, the actual tax paid is deductible
even if the tax rate is less than the general sales tax rate. For motor
vehicles only, if the tax rate is more than the general sales tax rate, only
the portion of the tax that would have been imposed at the general sales tax
rate is deductible.
Motor vehicles include cars, motorcycles,
motor homes, recreational vehicles, SUVs, trucks, vans, offroad vehicles, and
leased motor vehicles.
The
amount from the optional state sales tax tables. An
additional amount for local general sales taxes is allowed if the taxpayer’s
locality imposes a general sales tax, plus taxes paid on motor vehicles
(described above), aircraft, boats, homes (including mobile and prefabricated
homes), or materials to build a home. For motor vehicles only, if the tax rate
is more than the general sales tax rate, 1) only
the portion of the tax that would have been imposed at the general sales tax
rate is deductible. For aircraft, boats, and homes, the tax is deductible only
if it was imposed at the general sales tax rate.
Business Taxes
Under either method, taxes paid on items used in a trade or
business are not deductible as itemized deductions.
Real Estate Taxes
Real estate taxes are deductible
as itemized deductions only if the taxpayer owns the real estate and the taxes
are based on the assessed value of the property. If a mortgage company pays the
taxes from an escrow account, deduct the taxes actually paid on behalf of the
taxpayer, not the amount the taxpayer paid into escrow. Unlike mortgage
interest, the real estate tax deduction is not limited to the first two homes
owned by the taxpayer.
Charges for Services
Itemized charges for trash collection, water, sewer, etc.
are not deductible as real estate taxes.
Special Assessments—Principal Portion
Charges for improvements that
tend to increase the value of the property are added to the basis of the
property and are not deductible. Example:
An assessment to build a new sidewalk. Charges to maintain existing public
facilities already in service are deductible as real estate taxes. Example: An assessment to repair an
existing sidewalk.
Special Assessments—Interest Portion
Deductible as real estate taxes regardless of whether the
assessment is for an improvement or a repair.
Sale or Purchase of House
The real estate tax
deduction must be adjusted for the time period the taxpayer actually owned the
property. The seller is treated as paying the property taxes up to, but not
including, the date of sale. The buyer is treated as paying the taxes
beginning with the date of sale. This rule applies even if the seller or buyer
actually pay different amounts at the closing.
Delinquent Taxes
If the buyer pays delinquent taxes that were imposed on the seller for an
earlier year, the buyer must add the taxes paid to basis rather than deduct
them. Refunds and rebates. If a
refund is received in 2013 for real estate taxes paid in 2013, the deduction is
reduced by the amount of the refund. If the refund is for taxes paid in an
earlier year, do not reduce the deduction on Schedule A. Instead, include the
refund or rebate in income on line 21, Form 1040, but only to the extent a tax
benefit was received for deducting the taxes in the earlier year.
Personal Property Taxes
Personal property taxes are deductible if based on value
alone and are charged on a yearly basis.
Example:
Jesse paid $99 for the registration of
his car in 2013. $64 of the fee was based on the car’s value, and $35 was based
on its weight. His deduction is limited to $64.
Refunds and Rebates
If a refund is received in
2013 for real estate taxes paid in 2013, reduce the itemized deduction on
Schedule A, Form 1040, by the amount of the refund. If the refund is for taxes
paid in an earlier year, do not reduce the deduction on Schedule A. Instead,
include the refund or rebate as Other Income on line 21, Form 1040, to the extent a tax benefit
was received for deducting the taxes in an earlier year.
Other Taxes
Taxpayers can choose to deduct foreign taxes or take a tax
credit on Form 1040.
Related articles
