Taxpayers who itemize deductions may be able to claim certain state, local, and foreign taxes on their tax returns. These deductions help reduce taxable income and must be claimed in the year they were paid.
What Taxes Are Deductible?
The following types of taxes may qualify for a deduction:
State, local, and foreign income taxes (or general sales taxes as an alternative).
Real property taxes imposed by state or local governments.
Personal property taxes based on the value of assets like cars or boats.
State and Local Income Taxes vs. Sales Taxes
Taxpayers can choose to deduct either:
State and local income taxes, including amounts withheld from wages or estimated payments.
General sales taxes, which can be calculated using actual receipts or IRS-provided tax tables.
Real Property and Personal Property Taxes
Real estate property taxes must be imposed for public welfare and charged uniformly in a given area.
Personal property taxes must be based solely on the value of the property and charged annually.
Deduction Limits and Restrictions
The total deduction for state and local taxes (SALT) is capped at $10,000 ($5,000 for married couples filing separately).
Some taxes cannot be deducted, including federal income taxes, Social Security taxes, estate taxes, and homeowner’s association fees.
Understanding which taxes qualify for deductions can help taxpayers reduce their overall tax burden. Always review the latest tax guidelines or consult a tax professional for personalized advice.