It’s my annual "Taxes from A to Z" series!
Most taxpayers are used to the idea that they can deduct taxes paid on real property. Real property generally includes land and improvements. Most commonly, those improvements are buildings. You most likely identify the "improvement" on your land as your personal residence.
That said, state and local municipalities don't just tax real property. They may also tax personal property.
Personal property can be tricky to define because it can be further broken down into categories. As a rule of thumb, think of personal property as property that can be easily moved, meaning that you can pick it up and take it with you. Tangible personal property is personal property that you can touch (like cars and furniture) while intangible personal property is personal property that you can't touch (like stocks or intellectual property).
Many states or local governments impose a tax on personal property. The rules for taxation are as varied as the number of jurisdictions. For example, some states tax cars and boats owned by taxpayers while others only impose a tax on business assets.
No matter how each state imposes tax, when it comes to federal income tax, the rules are the same: you can only deduct taxes you paid on personal property that you own, when tax is imposed on the value of the item on an annual basis. If you lease, not own, the item, there's no deduction. If tax is imposed by the piece and not by the value (i.e. $100 per car), there's no deduction. If tax is imposed only at sale, there's no deduction. You get the picture.
However, if you meet the criteria AND if you itemize your expenses on a Schedule A, you can deduct state and local personal property taxes paid during the year. You'll report those expenses on line 7 of your Schedule A:
But don't get carried away. While you might be able to deduct the cost of the taxes for owning personal property, you don't get to deduct the costs of operating them: tax on gasoline, car inspection fees and license fees are not deductible.
For other posts in the series:
- Taxes From A To Z (2015): A Is For Actual Expense Method
- Taxes From A To Z (2015): B Is For Bona Fide Residence Test
- Taxes From A To Z (2015): C Is For Commuting Expenses
- Taxes From A To Z (2015): D Is For Disability Income
- Taxes From A To Z (2015): E Is For Early Distributions
- Taxes From A To Z (2015): F Is For FIFO
- Taxes From A To Z (2015): G Is For Gross Income Test
- Taxes From A To Z (2015): H Is For Household Employees
- Taxes From A To Z (2015): I Is For Insolvency
- Taxes From A To Z (2015): J Is For J Visa
- Taxes From A To Z (2015): K Is For Koskinen
- Taxes From A To Z (2015): L Is For Legal Expenses
- Taxes From A To Z (2015): M Is For Municipal Bonds
Taxes From A To Z (2015): N Is For Nonrefundable Tax Credits
Taxes From A To Z (2015): O Is For OID
