Itemized Deductions: Taxes Paid

Optimize your tax deductions by understanding the rules for deducting state and local taxes. This guide covers the deduction limits, eligible taxes, and specific rules for real estate, personal property, and sales taxes. It also includes examples to illustrate the correct application of these deductions and addresses special cases like delinquent taxes and tax refunds.

Highlights:

• Deduction Limit: The total itemized deduction for state and local taxes paid is limited to $10,000 ($5,000 if married filing separately).

• State and Local Taxes: Choose to deduct either state and local income taxes or sales taxes, not both.

• Real Estate Taxes: Deductible if based on the assessed value of the property, with special rules for properties bought or sold during the year.

• Personal Property Taxes: Deductible if based solely on the value of the property and charged annually.

• Special Cases: Guidelines for handling delinquent taxes, refunds, and the deduction of other taxes, including foreign income taxes.