DEDUCTIBLE TAXES

IRS TAX TIP 2001-35

DEDUCTIBLE TAXES

WASHINGTON -- Did you know that you may be able to deduct certain taxes on

your federal income tax return? You can if you file IRS Form 1040 and itemize

deductions on Schedule A. There are three types of deductible non-business taxes:

• State, local and foreign income taxes;

• Real estate taxes; and

• Personal property taxes.

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.

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.

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.

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.

You can find more information on non-business deductions for taxes in

Publication 17, “Your Federal Income Tax,” under Chapter 24, “Taxes.” You may

download Pub. 17 from the IRS Web site at www.irs.gov, or order it by calling 1-800-

829-3676.