<topic sku="core" tNum="289577" author="sallyh" xmlns="x-schema:hhTopicSchema.xml"><index><title>Learn about deductible taxes</title><category>tax</category><klink type="prcdr">Tell me about deductible taxes</klink></index>
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<p>You can deduct<mdash/>as an itemized deduction<mdash/>many types of taxes you pay, including state and local income tax, real estate tax, and personal property tax. In general, you take the deduction in the year you pay the tax or have it withheld from your pay. To accurately track your tax-related transactions for tax exporting and estimating your taxes, be sure to categorize all your deductible tax payments correctly.</p>
<p><emph>State and local income tax.</emph> You may pay state and local income tax several ways:</p>
<ul>
<li><emph>Paycheck withholding.</emph> If you track your gross pay and categorize your state and local tax withholding, Money calculates your withholding for the year. If you only track your net pay, enter your withholding in the Tax Estimator. In either case, when you file your tax return, use the amount on the Form W-4 from your employer. If it is significantly different than the amount in your Money file, you may want to contact your employer. If you have mandatory contributions to state benefit funds withheld from your pay, be sure to categorize them as deductible taxes.</li>
<li><emph>Other withholding.</emph> You may also have state and local income tax withheld from other income, such as retirement income, unemployment income, or gambling winnings.</li>
<li><emph>State or local tax payments made during the year.</emph> Include tax paid with your state or local income tax return, estimated tax payments, and other payments you make, such as a payment on any previous year in response to a letter from the tax authority.</li>
<li><emph>Overpayment credited to current year taxes.</emph> If your state or local tax return showed a refund due you, and you elected to have it applied to the next year's taxes, deduct the amount applied this year. You may also have to include some or all of it as income if you received a tax benefit from it in a prior year.</li>
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<p><emph>Real estate taxes.</emph> You can generally deduct real estate taxes, whether the taxes are for your home or for other real estate, when the taxes are paid. However, paying into an escrow account does not qualify as paying the tax<mdash/>you cannot deduct it until the escrow company pays the tax. Because of timing differences, this amount may be slightly different than the amount you actually pay during the year. You receive a Form 1098, Mortgage Interest Statement, that shows any taxes paid on your behalf. Check with your mortgage company if you have questions about the difference between what you paid and what was remitted to the tax authority. </p>
<p>If you bought or sold real property during the year, check your closing statements for tax adjustments. If the adjustment increases the amount you must pay at closing, or if it reduces the amount of sales proceeds you receive, add the adjustment amount to your deductible real estate taxes. If the adjustment is in your favor, however, reduce your deductible real estate tax amount by this amount. Do not include amounts you prepay into an escrow account.</p>
<p><emph>Personal property taxes.</emph> Personal property taxes may also qualify for a tax deduction if they meet certain conditions. Categorize your personal property tax payments as deductible taxes if they are charged on personal property (property other than real estate), the tax is based on the value of the property, and it is charged on an annual basis (regardless of when it is collected).</p>
<p> For more information, see IRS instructions for Schedule A, Itemized Deductions, on the <alink type="xtnl" href="http://www.irs.gov">IRS Web site</alink>.</p>
