What taxes are deductible on a federal income tax return?

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UPDATED: Jul 16, 2021

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Written By: Jeffrey JohnsonUPDATED: Jul 16, 2021Fact Checked

There are several kinds of taxes that are deductible, but not all deductions are available for all taxpayers. Because of major tax reform enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Act in 2017, the ability to itemize deductions to reduce taxable income was severely curtailed, as were tax credits and other deductions and significant changes in the impact of the AMT.

(NOTE: With the latest tax law changes, the federal tax form, Form 1040, underwent a significant set of design changes and is a lot more basic than it used to be. Gone are forms 1040A (the “short form”) and 1040EZ (the form for filers who have no dependents) and instead Form 1040 and related forms and schedules are now built as a more modular set of forms. There are also 6 new numbered schedules or forms to be filled in if applicable to your circumstance.)

Self-employment taxes are deductible for everyone who is self employed.  Beginning in 2018, they are deducted on Schedule 1 of Form 1040.

State and local income taxes (or if you elect instead, sales tax), real estate taxes and personal property taxes are deductible if you are able to itemize, on Schedule A.  (Property taxes held in an escrow account are not deductible until actually paid by the escrow company to the taxing authority.) Or, if it works better for your tax situation, you have the option to deduct sales tax in lieu of state and local income taxes.  The main reason for this option is to allow fair treatment for taxpayers located in states that do not have state income tax.

2017 tax law changes: Beginning in 2018 through 2025, on Schedule A, the combined, total deduction for state, local, and property taxes is limited to $10,000 ($5,000 if married filing separately).  Any state and local taxes paid above this amount cannot be deducted.

The deduction for foreign real property taxes is totally gone (unless paid in carrying on a business or trade). 

Foreign income taxes can be deductible but there is also a credit available for foreign income taxes and that normally produces a better result than a deduction.  That is something that should be discussed with your tax consultant.

For more information on deductibility of taxes, see IRS Publication 17.

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

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