Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.
There are five types of deductible non-business taxes:
- State and Local Income or Sales Taxes
You can choose to claim a state and local tax deduction for either income or sales taxes on your return. You can deduct any estimated taxes paid to state or local governments and any prior year’s state or local income tax as long as they were paid during the tax year.If deducting sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts.
Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.
- Real Estate Taxes
Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities.Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
- Personal Property Taxes
Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.
- Foreign Income Taxes
Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax.
- New Vehicle Sales and Excise Tax
If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for sales and excise taxes on your purchase. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
Call us for more information on non-business deductions for taxes.