- State and local property taxes you pay during the year are deductible on your income tax return. This is an important deduction for landowners, since the real estate taxes you pay on your primary residence, secondary residences, vacant land and other real estate is tax deductible. According to the IRS, if you bought or sold real estate at some time during the year, the property taxes paid must be divided between the buyer and seller for tax purposes.
- Income taxes you pay to your state or local tax authority are deductible on your federal income tax return. This deduction avoids making taxpayers pay income taxes twice on the same income. The IRS states that income taxes paid to a foreign tax authority also qualifies for a tax deduction or a tax credit against your U.S. income taxes.
- The IRS allows taxpayers to deduct the cost of state and local sales taxes on their income tax returns. According to TurboTax, if you choose to deduct sales taxes, you cannot deduct state and local income taxes. Most taxpayers will benefit from deducting state income taxes instead of sales taxes, but in states without state income tax, such as Alaska, Florida and Texas, the sales tax deduction will likely be beneficial.
- The IRS offered a special tax deduction for sales taxes and excise taxes paid on motor vehicles. The IRS states that vehicles purchased after Feb. 16, 2009, and before Jan. 1, 2010, qualify for the deduction. The tax deduction is phased out at higher levels of income; your income must have been less than $125,000 as a single tax filer to get the full benefit.
- While certain state and local taxes are deductible, there are others that the IRS does not allow taxpayers to deduct from federal income taxes. The IRS lists the following as examples of nondeductible taxes: license fees, employment taxes (Social Security and Medicare taxes), federal income taxes, estate taxes and gift taxes.
previous post