There are certain types of taxes that you can deduct on your return if you itemize on Form 1040, Schedule A. To be deductible, a tax must be charged to you and you must have paid it during your tax year.
Caution: For 2018-2025, the Tax Cuts and Jobs Act (TCJA) limits itemized deductions for state and local property taxes and personal state and local income taxes (or sales taxes if you choose that option) to a combined total of only $10,000.
Here are some taxes the IRS will allow you to deduct if you itemize:
State and local income tax. Individuals can deduct state and local (city) income taxes on their Federal tax return. These taxes usually are withheld from your wages during the tax year and appear on your Form W-2. Also, any estimated state and local tax payments during the tax year are tax-deductible. To increase your itemized deductions on your tax return, consider prepaying estimated state income taxes before the end of the year. Lastly, if you owed any tax on last year's state-and-local tax return, those tax payments are deductible in the current tax year.
State and local sales tax. If you itemize, you have the option of claiming your state and local sales tax or state and local income tax. Retirees, pensioners, and residents of states without a state income tax often opt to deduct sales tax. Optional sales-tax tables included in the Schedule A instructions give taxpayers a sales-tax deduction amount as an alternative to saving their receipts (actual expenses) throughout the year. Taxpayers use their income level and number of exemptions to find the sales-tax amount for their state. If you purchased a vehicle, boat or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state.
Real-estate tax. The real-estate or property taxes you pay on your residence can be deducted on your tax return. Make sure to include any town or village tax. A person must have ownership interest in the property to deduct the payment. This amount often appears on the mortgage-interest statement you receive from your mortgage lender at the end of the year. Property taxes on a second or vacation home are deductible. If you own a timeshare in which you hold a deed of trust, you may write off the portion of the maintenance fee allocated to property taxes. New home-buyers and re-financers should review the settlement pages from their closing statement, as deductible real-estate taxes are usually listed there.
Some taxes and fees which you cannot deduct on Schedule A include Federal income taxes, Social Security taxes, homeowner's-association fees, estate and inheritances taxes, and service for water, sewer or trash collection.
Refer to Publication 17 for taxes you can or cannot deduct.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or email@example.com.
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