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Useful Items Exception. You can’t deduct state and local in-
You may want to see: come taxes you pay on income that is exempt
from federal income tax, unless the exempt in-
Publication come is interest income. For example, you can’t
deduct the part of a state's income tax that is on
502
11. 503 502 Medical and Dental Expenses a cost-of-living allowance exempt from federal
income tax.
503 Child and Dependent Care Expenses
504 504 Divorced or Separated individuals What To Deduct
Taxes 514 514 Foreign Tax Credit for Individuals Your deduction may be for withheld taxes, esti-
525 Taxable and Nontaxable Income
525
530 530 Tax Information for Homeowners mated tax payments, or other tax payments as
follows.
Reminders Form (and Instructions) Withheld taxes. You can deduct state and lo-
Schedule A (Form 1040) Schedule A (Form 1040) Itemized cal income taxes withheld from your salary in
Limitation on deduction for state and local Deductions the year they are withheld. Your Form(s) W-2
taxes. The Tax Cuts and Jobs Act provided Schedule E (Form 1040) Schedule E (Form 1040) Supplemental will show these amounts. Forms W-2G, 1099-B,
for a temporary limitation on the deduction for Income and Loss 1099-DIV, 1099-G, 1099-K, 1099-MISC,
state and local taxes. See Limitation on deduc- 1116 1116 Foreign Tax Credit 1099-NEC, 1099-OID, and 1099-R may also
tion for state and local taxes, later. show state and local income taxes withheld.
No deduction for foreign taxes paid for real For these and other useful items, go to IRS.gov/ Estimated tax payments. You can deduct es-
estate. You can no longer deduct foreign Forms. timated tax payments you made during the year
taxes you paid on real estate. Tests To Deduct to a state or local government. However, you
must have a reasonable basis for making the
Introduction Any Tax estimated tax payments. Any estimated state or
local tax payments that aren’t made in good
This chapter discusses which taxes you can de- faith at the time of payment aren’t deductible.
duct if you itemize deductions on Schedule A The following two tests must be met for you to
(Form 1040). It also explains which taxes you deduct any tax. Example. You made an estimated state in-
can deduct on other schedules or forms and • The tax must be imposed on you. come tax payment. However, the estimate of
which taxes you can’t deduct. • You must pay the tax during your tax year. your state tax liability shows that you will get a
This chapter covers the following topics. refund of the full amount of your estimated pay-
ment. You had no reasonable basis to believe
• Income taxes (federal, state, local, and for- The tax must be imposed on you. In gen- you had any additional liability for state income
eign). eral, you can deduct only taxes imposed on taxes and you can’t deduct the estimated tax
you.
• General sales taxes (state and local). Generally, you can deduct property taxes payment.
• Real estate taxes (state, local, and for- only if you are an owner of the property. If your Refund applied to taxes. You can deduct any
eign). spouse owns the property and pays the real es- part of a refund of prior-year state or local in-
• Personal property taxes (state and local). tate taxes, the taxes are deductible on your come taxes that you chose to have credited to
spouse's separate return or on your joint return.
your 2020 estimated state or local income
• Taxes and fees you can’t deduct. You must pay the tax during your tax year. taxes.
Use Table 11-1 as a guide to determine If you are a cash basis taxpayer, you can de- Don’t reduce your deduction by either of the
which taxes you can deduct. duct only those taxes you actually paid during following items.
The end of the chapter contains a section your tax year. If you pay your taxes by check • Any state or local income tax refund (or
that explains which forms you use to deduct dif- and the check is honored by your financial insti- credit) you expect to receive for 2020.
ferent types of taxes. tution, the day you mail or deliver the check is
Business taxes. You can deduct certain taxes the date of payment. If you use a pay-by-phone • Any refund of (or credit for) prior-year state
and local income taxes you actually re-
only if they are ordinary and necessary expen- account (such as a credit card or electronic ceived in 2020.
ses of your trade or business or of producing in- funds withdrawal), the date reported on the
come. For information on these taxes, see Pub. statement of the financial institution showing However, part or all of this refund (or credit)
535, Business Expenses. when payment was made is the date of pay- may be taxable. See Refund (or credit) of state
or local income taxes, later.
ment. If you contest a tax liability and are a cash
State or local taxes. These are taxes im- basis taxpayer, you can deduct the tax only in
posed by the 50 states, U.S. possessions, or the year you actually pay it (or transfer money Separate federal returns. If you and your
any of their political subdivisions (such as a or other property to provide for satisfaction of spouse file separate state, local, and federal in-
county or city), or by the District of Columbia. the contested liability). See Pub. 538, Account- come tax returns, each of you can deduct on
your federal return only the amount of your own
Indian tribal government. An Indian tribal ing Periods and Methods, for details. state and local income tax that you paid during
government recognized by the Secretary of the If you use an accrual method of accounting, the tax year.
Treasury as performing substantial government see Pub. 538 for more information.
functions will be treated as a state for purposes Joint state and local returns. If you and
of claiming a deduction for taxes. Income taxes, Income Taxes your spouse file joint state and local returns and
real estate taxes, and personal property taxes separate federal returns, each of you can de-
imposed by that Indian tribal government (or by This section discusses the deductibility of state duct on your separate federal return a part of
any of its subdivisions that are treated as politi- and local income taxes (including employee the state and local income taxes paid during the
cal subdivisions of a state) are deductible. contributions to state benefit funds) and foreign tax year. You can deduct only the amount of the
General sales taxes. These are taxes im- income taxes. total taxes that is proportionate to your gross in-
posed at one rate on retail sales of a broad come compared to the combined gross income
of you and your spouse. However, you can’t de-
range of classes of items. State and Local Income duct more than the amount you actually paid
Foreign taxes. These are taxes imposed by a Taxes during the year. You can avoid this calculation if
foreign country or any of its political subdivi- you and your spouse are jointly and individually
sions. You can deduct state and local income taxes. liable for the full amount of the state and local
Page 94 Chapter 11 Taxes