The federal tax code as of 2012 allows you deduct certain local taxes from your taxable income. You must itemize on Schedule A of your Form 1040 in order to claim this deduction. Local taxes are not deductible if you take the standard deduction. The general types of local taxes that you can deduct are income taxes, real estate taxes and personal property taxes.
You can deduct local income taxes withheld from your pay or paid by you directly to the local taxing jurisdiction. Your Form W-2 or Form 1099 will show any local income taxes withheld. You can deduct estimated tax payments to a local government if you had a “reasonable basis” to believe your local tax liability would exceed your local withholding. If you received a local income tax refund from the previous year, you add it to your other taxable income unless you didn’t deduct local taxes that year.
Real Estate Taxes
Local real estate taxes are deductible if they are levied for the general public welfare, are based on the assessed value of the real estate, are charged uniformly against all real estate within the local jurisdiction, and were paid by you during the tax year. If you are a tenant-stockholder in a housing cooperative, you can deduct payments to the cooperative that represent your apportioned share of the real estate taxes on the cooperative’s property. If you pay property taxes through an escrow account, you deduct only the funds paid out of the account. If real estate changed hands during the year, buyer and seller divide the taxes between them according to the number of days each owned the real estate.
There are certain real estate-related local levies that you can’t deduct, even if they are included in your local real estate tax bill. You can’t deduct special tax levies for neighborhood improvements such as streets, sidewalks, utility lines and other projects of primary benefit just to your neighborhood. You can’t deduct charges for municipal utility services such as water, sewers and trash removal. Real estate-related levies by private parties are not deductible, such as homeowner association dues or landlord rent surcharges because of a real estate tax increase.
Personal Property Taxes
Personal property taxes levied by local governments on property such as automobiles may be deductible. To be deductible, the tax must be based on the dollar value of the personal property. It must be levied on a yearly basis even if it is collected in installments spread over the year. Local privilege taxes are deductible if they are based on the value of the privileged personal property.
Other Taxes and Fees
The tax deduction for local and state sales taxes expired at the end of 2011. As of August 2012, Congress had not acted to reinstate this deduction. Most other local levies and fees are not deductible: for example, you can’t deduct local per-capita taxes; local taxes on real estate transfers; fines or penalties paid to a local jurisdiction for law violations; or local personal license fees, such as for a marriage license or dog license.
Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.