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Tax deduction for Real estate and other taxes

IRS guidelines on Real estate taxes and other taxes paid

Topic 503 - Deductible Taxes

There are four types of deductible non-business taxes:

  • State, local and foreign income taxes
  • State, local and foreign real estate taxes
  • State, and local personal property taxes, and
  • State and local general sales taxes

To be deductible, the tax must be imposed on you and must have been paid during your tax year. Taxes may be claimed only as an itemized deduction on Form 1040, Schedule A (PDF), Itemized Deductions.

State and local income taxes withheld from your wages during the year appear on your Form W-2 (PDF). You can elect to deduct state and local general sales taxes instead of state and local income taxes, but you cannot deduct both. If you elect to deduct state and local general sales taxes, you can use either your actual expenses or the optional sales tax tables. Refer to the Form 1040, Schedule A Instructions (PDF), for more information and for the optional sales tax tables. NOTE: The deduction for state and local general sales taxes expired December 31, 2013. You may claim it on your tax year 2013 tax return if you qualify. Under current law, the deduction is not available for tax years after 2013. The following amounts are also deductible:

  • Any estimated taxes you paid to state or local governments during the year, and
  • Any prior year's state or local income tax you paid during the year.

Generally, you can take either a deduction or a tax credit for foreign income taxes imposed on you by a foreign country or a United States possession. For information regarding the foreign tax credit, refer to Topic 856. As an employee, you can deduct mandatory contributions to state benefit funds that provide protection against loss of wages. Refer to Publication 17Your Federal Income Tax for Individuals, for the states that have such funds.

Deductible real estate taxes are generally any state, local, or foreign taxes on real property levied for the general public welfare. They must be charged uniformly against all real property in the jurisdiction at a like rate. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks, and sewer lines. These taxes cannot be deducted. However, you can increase the cost basis of your property by the amount of the assessment. Refer to Publication 551Basis of Assets, for more information. Local benefits taxes are deductible if they are for maintenance or repair, or interest charges related to those benefits.

If a portion of your monthly mortgage payment goes into an escrow account, and periodically the lender pays your real estate taxes out of the account to the local government, do not deduct the amount paid into the escrow account. Only deduct the amount actually paid out of the escrow account during the year to the taxing authority.

Deductible personal property taxes are those based only on the value of personal property such as a boat or car. 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.

Some taxes and fees you cannot deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection. Refer to the Form 1040 Instructions (PDF) and Publication 17 for more taxes you cannot deduct. You may be subject to a limit on some of your itemized deductions including non-business taxes. In addition to these limits, beginning in 2013, your total itemized deductions may be phased out (reduced) based on your adjusted gross income. Please refer to the Form 1040 Instructions (PDF) and Topic 501 for the limitations.

For more information on non-business deductions for taxes, refer to Publication 17Your Federal Income Tax (For Individuals).

Gary Wilson, CPA​​​​​​​​​​​

Accounting and Tax Preparation                                                 

(614) 361-4760 * Westerville, Ohio 

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