Different non-business related taxes can be deductible at tax time. There are four different types of state or local taxes that are eligible for federal deduction:
- Income taxes (including foreign)
- Real estate taxes (including foreign)
- Personal property taxes
- General sales taxes
You can claim these taxes that you paid during the year on a Schedule A, as an itemized deduction.
Once you receive your Form W-2 from your employer, you can determine the amount you paid in state and local taxes. You have the option of deducting either income tax or sales tax, but you are only able to choose one. To deduct sales tax, you can use either the actual expenses, or use a standard sales tax amount based on different tax tables. Additionally, you can deduct estimated taxes you paid to state or local governments, as well as the amount of a previous year’s taxes that you paid during the current tax year.
Taxes paid to a foreign country or U.S. possession are eligible to either be deducted or claimed through a credit. Any kind of money paid to a mandatory employee benefit fund that aids in times of need may be eligible for deduction.
Real estate taxes paid on property levied for the public are deductible. The rate must be similar to other properties in the same community. Taxpayers who live in municipalities, communities, and states that charge for maintenance, sidewalk, sewer, and street do not qualify for tax deductions, though you are able to increase the value of your home to reflect the charges.
Payments made to an escrow account, used to pay real estate taxes aren’t deducted at tax time, until you actually use the escrow to pay the taxes.
Property taxes, such as those charged to vehicles, can only be deducted if the tax occurs annually, and is collected at any time.
Certain taxes cannot be deducted on a Schedule A. Those include:
- Social Security taxes
- Homeowner’s association fees
- Transfer taxes on property sales
- Federal income taxes
- Estate or inheritance tax
- Service charges for maintenance, trash collection, or sewer costs
There are certain phase-outs and limitations to these types of deductions dependent on your adjusted gross income.