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1040ez 2011 Online

1040ez 2011 online 5. 1040ez 2011 online   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. 1040ez 2011 online Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. 1040ez 2011 online When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. 1040ez 2011 online Otherwise, these are capital expenses that must be added to the basis of the land. 1040ez 2011 online (See chapter 6 for information on determining basis. 1040ez 2011 online ) Conservation expenses for land in a foreign country do not qualify for this special treatment. 1040ez 2011 online The deduction for conservation expenses cannot be more than 25% of your gross income from farming. 1040ez 2011 online See 25% Limit on Deduction , later. 1040ez 2011 online Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. 1040ez 2011 online These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. 1040ez 2011 online You must include in income most government payments for approved conservation practices. 1040ez 2011 online However, you can exclude some payments you receive under certain cost-sharing conservation programs. 1040ez 2011 online For more information, see Agricultural Program Payments in chapter 3. 1040ez 2011 online To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. 1040ez 2011 online Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. 1040ez 2011 online You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. 1040ez 2011 online You are not farming if you are engaged only in forestry or the growing of timber. 1040ez 2011 online Farm defined. 1040ez 2011 online   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. 1040ez 2011 online It also includes plantations, ranches, ranges, and orchards. 1040ez 2011 online A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. 1040ez 2011 online It does not include an area where they are merely caught or harvested. 1040ez 2011 online A plant nursery is a farm for purposes of deducting soil and water conservation expenses. 1040ez 2011 online Farm rental. 1040ez 2011 online   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. 1040ez 2011 online If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. 1040ez 2011 online   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. 1040ez 2011 online Example. 1040ez 2011 online You own a farm in Iowa and live in California. 1040ez 2011 online You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. 1040ez 2011 online You cannot deduct your soil conservation expenses for this farm. 1040ez 2011 online You must capitalize the expenses and add them to the basis of the land. 1040ez 2011 online     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. 1040ez 2011 online Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. 1040ez 2011 online If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. 1040ez 2011 online Keep a copy of the plan with your books and records to support your deductions. 1040ez 2011 online Conservation plan. 1040ez 2011 online   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. 1040ez 2011 online There are three types of approved plans. 1040ez 2011 online NRCS individual site plans. 1040ez 2011 online These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. 1040ez 2011 online NRCS county plans. 1040ez 2011 online These plans include a listing of farm conservation practices approved for the county where the farmland is located. 1040ez 2011 online You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. 1040ez 2011 online Comparable state agency plans. 1040ez 2011 online These plans are approved by state agencies and can be approved individual site plans or county plans. 1040ez 2011 online   A list of NRCS conservation programs is available at www. 1040ez 2011 online nrcs. 1040ez 2011 online usda. 1040ez 2011 online gov/programs. 1040ez 2011 online Individual site plans can be obtained from NRCS offices and the comparable state agencies. 1040ez 2011 online Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. 1040ez 2011 online These expenses include, but are not limited to, the following. 1040ez 2011 online The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. 1040ez 2011 online The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. 1040ez 2011 online The eradication of brush. 1040ez 2011 online The planting of windbreaks. 1040ez 2011 online You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. 1040ez 2011 online These expenses are added to the basis of the land. 1040ez 2011 online If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. 1040ez 2011 online See chapter 3 for information about payments eligible for the cost-sharing exclusion. 1040ez 2011 online New farm or farmland. 1040ez 2011 online   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. 1040ez 2011 online You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. 1040ez 2011 online The new farming activity does not have to be the same as the old farming activity. 1040ez 2011 online For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. 1040ez 2011 online Land not used for farming. 1040ez 2011 online   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. 1040ez 2011 online For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. 1040ez 2011 online You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. 1040ez 2011 online Depreciable conservation assets. 1040ez 2011 online   You generally cannot deduct your expenses for depreciable conservation assets. 1040ez 2011 online However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. 1040ez 2011 online See Assessment for Depreciable Property , later. 1040ez 2011 online   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. 1040ez 2011 online These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. 1040ez 2011 online You recover your capital investment through annual allowances for depreciation. 1040ez 2011 online   You can deduct soil and water conservation expenses for nondepreciable earthen items. 1040ez 2011 online Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. 1040ez 2011 online Water well. 1040ez 2011 online   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. 1040ez 2011 online It is a capital expense. 1040ez 2011 online You recover your cost through depreciation. 1040ez 2011 online You also must capitalize your cost for drilling a test hole. 1040ez 2011 online If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. 1040ez 2011 online You can recover the total cost through depreciation deductions. 1040ez 2011 online   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. 1040ez 2011 online Abandonment means that all economic benefits from the well are terminated. 1040ez 2011 online For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. 1040ez 2011 online Endangered species recovery expenses. 1040ez 2011 online   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. 1040ez 2011 online Otherwise, these are capital expenses that must be added to the basis of the land. 1040ez 2011 online   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. 1040ez 2011 online See Internal Revenue Code section 175 for more information. 1040ez 2011 online Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. 1040ez 2011 online You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. 1040ez 2011 online Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. 1040ez 2011 online This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. 1040ez 2011 online The depreciable property must be used in the district's soil and water conservation activities. 1040ez 2011 online However, the following limits apply to these assessments. 1040ez 2011 online The total assessment limit. 1040ez 2011 online The yearly assessment limit. 1040ez 2011 online After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. 1040ez 2011 online The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez 2011 online See Table 5-1 for a brief summary of these limits. 1040ez 2011 online Table 5-1. 1040ez 2011 online Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. 1040ez 2011 online Your deductible share of the cost to the district for the property. 1040ez 2011 online Your gross income from farming. 1040ez 2011 online No one taxpayer can deduct more than 10% of the total assessment. 1040ez 2011 online Any amount over 10% is a capital expense and is added to the basis of your land. 1040ez 2011 online If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040ez 2011 online If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. 1040ez 2011 online You can deduct the remainder in equal amounts over the next 9 tax years. 1040ez 2011 online Limit for all conservation expenses, including assessments for depreciable property. 1040ez 2011 online Amounts greater than 25% can be carried to the following year and added to that year's expenses. 1040ez 2011 online The total is then subject to the 25% of gross income from farming limit in that year. 1040ez 2011 online To ensure your deduction is within the deduction limits, keep records to show the following. 1040ez 2011 online The total assessment against all members of the district for the depreciable property. 1040ez 2011 online Your deductible share of the cost to the district for the depreciable property. 1040ez 2011 online Your gross income from farming. 1040ez 2011 online Total assessment limit. 1040ez 2011 online   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. 1040ez 2011 online This applies whether you pay the assessment in one payment or in installments. 1040ez 2011 online If your assessment is more than 10% of the total amount assessed, both the following rules apply. 1040ez 2011 online The amount over 10% is a capital expense and is added to the basis of your land. 1040ez 2011 online If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040ez 2011 online Yearly assessment limit. 1040ez 2011 online   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. 1040ez 2011 online If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. 1040ez 2011 online If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. 1040ez 2011 online You can deduct the remainder in equal amounts over the next 9 tax years. 1040ez 2011 online Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez 2011 online Example 1. 1040ez 2011 online This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. 1040ez 2011 online Of the assessment, $1,500 is for digging drainage ditches. 1040ez 2011 online You can deduct this part as a soil or conservation expense as if you had paid it directly. 1040ez 2011 online The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. 1040ez 2011 online The total amount assessed by the district against all its members for the depreciable equipment is $7,000. 1040ez 2011 online The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. 1040ez 2011 online The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. 1040ez 2011 online To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. 1040ez 2011 online Add $500 to the result for a total of $570. 1040ez 2011 online Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). 1040ez 2011 online You can deduct the balance at the rate of $70 a year over the next 9 years. 1040ez 2011 online You add $70 to the $1,500 portion of the assessment for drainage ditches. 1040ez 2011 online You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040ez 2011 online Example 2. 1040ez 2011 online Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. 1040ez 2011 online The total amount assessed by the district against all its members for depreciable equipment is $5,500. 1040ez 2011 online The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. 1040ez 2011 online The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). 1040ez 2011 online Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. 1040ez 2011 online You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. 1040ez 2011 online Sale or other disposal of land during 9-year period. 1040ez 2011 online   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. 1040ez 2011 online Death of farmer during 9-year period. 1040ez 2011 online   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. 1040ez 2011 online 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. 1040ez 2011 online Gross income from farming. 1040ez 2011 online   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. 1040ez 2011 online Gains from sales of draft, breeding, or dairy livestock are included. 1040ez 2011 online Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. 1040ez 2011 online Carryover of deduction. 1040ez 2011 online   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. 1040ez 2011 online However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. 1040ez 2011 online Example. 1040ez 2011 online In 2012, you have gross income of $32,000 from two farms. 1040ez 2011 online During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. 1040ez 2011 online However, your deduction is limited to 25% of $32,000, or $8,000. 1040ez 2011 online The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. 1040ez 2011 online The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. 1040ez 2011 online Any expenses over the limit in that year are carried to 2014 and later years. 1040ez 2011 online Net operating loss. 1040ez 2011 online   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. 1040ez 2011 online If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. 1040ez 2011 online When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. 1040ez 2011 online If you do not choose to deduct the expenses, you must capitalize them. 1040ez 2011 online Change of method. 1040ez 2011 online   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. 1040ez 2011 online To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. 1040ez 2011 online You or your authorized representative must sign the request. 1040ez 2011 online   The request must include the following information. 1040ez 2011 online Your name and address. 1040ez 2011 online The first tax year the method or change of method is to apply. 1040ez 2011 online Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. 1040ez 2011 online If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. 1040ez 2011 online The total expenses you paid or incurred in the first tax year the method or change of method is to apply. 1040ez 2011 online A statement that you will account separately in your books for the expenses to which this method or change of method relates. 1040ez 2011 online Send your request to the following  address. 1040ez 2011 online  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. 1040ez 2011 online Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). 1040ez 2011 online However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. 1040ez 2011 online Gain on sale of farmland. 1040ez 2011 online   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. 1040ez 2011 online If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. 1040ez 2011 online See Section 1252 property under Other Gains in chapter 9. 1040ez 2011 online Prev  Up  Next   Home   More Online Publications
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1040ez 2011 online 22. 1040ez 2011 online   Taxes Table of Contents IntroductionIndian tribal government. 1040ez 2011 online Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. 1040ez 2011 online Real Estate TaxesReal estate taxes for prior years. 1040ez 2011 online Examples. 1040ez 2011 online Form 1099-S. 1040ez 2011 online Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). 1040ez 2011 online It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. 1040ez 2011 online This chapter covers the following topics. 1040ez 2011 online Income taxes (federal, state, local, and foreign). 1040ez 2011 online General sales taxes (state and local). 1040ez 2011 online Real estate taxes (state, local, and foreign). 1040ez 2011 online Personal property taxes (state and local). 1040ez 2011 online Taxes and fees you cannot deduct. 1040ez 2011 online Use Table 22-1 as a guide to determine which taxes you can deduct. 1040ez 2011 online The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. 1040ez 2011 online Business taxes. 1040ez 2011 online   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. 1040ez 2011 online For information on these taxes, see Publication 535, Business Expenses. 1040ez 2011 online State or local taxes. 1040ez 2011 online   These are taxes imposed by the 50 states, U. 1040ez 2011 online S. 1040ez 2011 online possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. 1040ez 2011 online Indian tribal government. 1040ez 2011 online   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. 1040ez 2011 online Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. 1040ez 2011 online General sales taxes. 1040ez 2011 online   These are taxes imposed at one rate on retail sales of a broad range of classes of items. 1040ez 2011 online Foreign taxes. 1040ez 2011 online   These are taxes imposed by a foreign country or any of its political subdivisions. 1040ez 2011 online Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. 1040ez 2011 online The tax must be imposed on you. 1040ez 2011 online You must pay the tax during your tax year. 1040ez 2011 online The tax must be imposed on you. 1040ez 2011 online   In general, you can deduct only taxes imposed on you. 1040ez 2011 online   Generally, you can deduct property taxes only if you are an owner of the property. 1040ez 2011 online If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. 1040ez 2011 online You must pay the tax during your tax year. 1040ez 2011 online   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. 1040ez 2011 online If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. 1040ez 2011 online If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. 1040ez 2011 online If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). 1040ez 2011 online See Publication 538, Accounting Periods and Methods, for details. 1040ez 2011 online    If you use an accrual method of accounting, see Publication 538 for more information. 1040ez 2011 online Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. 1040ez 2011 online State and Local Income Taxes You can deduct state and local income taxes. 1040ez 2011 online However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. 1040ez 2011 online See General Sales Taxes , later. 1040ez 2011 online Exception. 1040ez 2011 online    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. 1040ez 2011 online For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. 1040ez 2011 online What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. 1040ez 2011 online Withheld taxes. 1040ez 2011 online   You can deduct state and local income taxes withheld from your salary in the year they are withheld. 1040ez 2011 online Your Form(s) W-2 will show these amounts. 1040ez 2011 online Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. 1040ez 2011 online Estimated tax payments. 1040ez 2011 online   You can deduct estimated tax payments you made during the year to a state or local government. 1040ez 2011 online However, you must have a reasonable basis for making the estimated tax payments. 1040ez 2011 online Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. 1040ez 2011 online For example, you made an estimated state income tax payment. 1040ez 2011 online However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. 1040ez 2011 online You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. 1040ez 2011 online Refund applied to taxes. 1040ez 2011 online   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. 1040ez 2011 online    Do not reduce your deduction by either of the following items. 1040ez 2011 online Any state or local income tax refund (or credit) you expect to receive for 2013. 1040ez 2011 online Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. 1040ez 2011 online   However, part or all of this refund (or credit) may be taxable. 1040ez 2011 online See Refund (or credit) of state or local income taxes , later. 1040ez 2011 online Separate federal returns. 1040ez 2011 online   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. 1040ez 2011 online Joint state and local returns. 1040ez 2011 online   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. 1040ez 2011 online You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. 1040ez 2011 online However, you cannot deduct more than the amount you actually paid during the year. 1040ez 2011 online You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. 1040ez 2011 online If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. 1040ez 2011 online Joint federal return. 1040ez 2011 online   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. 1040ez 2011 online Contributions to state benefit funds. 1040ez 2011 online    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. 1040ez 2011 online For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. 1040ez 2011 online Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. 1040ez 2011 online Alaska Unemployment Compensation Fund. 1040ez 2011 online California Nonoccupational Disability Benefit Fund. 1040ez 2011 online New Jersey Nonoccupational Disability Benefit Fund. 1040ez 2011 online New Jersey Unemployment Compensation Fund. 1040ez 2011 online New York Nonoccupational Disability Benefit Fund. 1040ez 2011 online Pennsylvania Unemployment Compensation Fund. 1040ez 2011 online Rhode Island Temporary Disability Benefit Fund. 1040ez 2011 online Washington State Supplemental Workmen's Compensation Fund. 1040ez 2011 online    Employee contributions to private or voluntary disability plans are not deductible. 1040ez 2011 online Refund (or credit) of state or local income taxes. 1040ez 2011 online   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. 1040ez 2011 online This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. 1040ez 2011 online If you did not itemize your deductions in the previous year, do not include the refund in income. 1040ez 2011 online If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. 1040ez 2011 online For a discussion of how much to include, see Recoveries in chapter 12. 1040ez 2011 online Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. 1040ez 2011 online S. 1040ez 2011 online possession. 1040ez 2011 online However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. 1040ez 2011 online S. 1040ez 2011 online tax under the foreign earned income exclusion or the foreign housing exclusion. 1040ez 2011 online For information on these exclusions, see Publication 54, Tax Guide for U. 1040ez 2011 online S. 1040ez 2011 online Citizens and Resident Aliens Abroad. 1040ez 2011 online For information on the foreign tax credit, see Publication 514. 1040ez 2011 online General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. 1040ez 2011 online You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. 1040ez 2011 online Actual expenses. 1040ez 2011 online   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. 1040ez 2011 online However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. 1040ez 2011 online If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. 1040ez 2011 online If you use the actual expenses method, you must have receipts to show the general sales taxes paid. 1040ez 2011 online Do not include sales taxes paid on items used in your trade or business. 1040ez 2011 online Motor vehicles. 1040ez 2011 online   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. 1040ez 2011 online This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. 1040ez 2011 online Optional sales tax tables. 1040ez 2011 online   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). 1040ez 2011 online You may also be able to add the state and local general sales taxes paid on certain specified items. 1040ez 2011 online   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. 1040ez 2011 online Your income is your adjusted gross income plus any nontaxable items such as the following. 1040ez 2011 online Tax-exempt interest. 1040ez 2011 online Veterans' benefits. 1040ez 2011 online Nontaxable combat pay. 1040ez 2011 online Workers' compensation. 1040ez 2011 online Nontaxable part of social security and railroad retirement benefits. 1040ez 2011 online Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. 1040ez 2011 online Public assistance payments. 1040ez 2011 online If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. 1040ez 2011 online See the Instructions for Schedule A (Form 1040), line 5, for details. 1040ez 2011 online Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. 1040ez 2011 online You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. 1040ez 2011 online Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. 1040ez 2011 online They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. 1040ez 2011 online For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. 1040ez 2011 online Tenant-shareholders in a cooperative housing corporation. 1040ez 2011 online   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. 1040ez 2011 online The corporation should provide you with a statement showing your share of the taxes. 1040ez 2011 online For more information, see Special Rules for Cooperatives in Publication 530. 1040ez 2011 online Division of real estate taxes between buyers and sellers. 1040ez 2011 online   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. 1040ez 2011 online   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. 1040ez 2011 online The seller is treated as paying the taxes up to, but not including, the date of sale. 1040ez 2011 online The buyer is treated as paying the taxes beginning with the date of sale. 1040ez 2011 online This applies regardless of the lien dates under local law. 1040ez 2011 online Generally, this information is included on the settlement statement provided at the closing. 1040ez 2011 online    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. 1040ez 2011 online This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. 1040ez 2011 online However, you must also include the amount of that tax in the selling price of the property. 1040ez 2011 online The buyer must include the same amount in his or her cost of the property. 1040ez 2011 online   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. 1040ez 2011 online Worksheet 22-1. 1040ez 2011 online Figuring Your Real Estate Tax Deduction 1. 1040ez 2011 online Enter the total real estate taxes for the real property tax year   2. 1040ez 2011 online Enter the number of days in the real property tax year that you owned the property   3. 1040ez 2011 online Divide line 2 by 365 (for leap years, divide line 2 by 366) . 1040ez 2011 online 4. 1040ez 2011 online Multiply line 1 by line 3. 1040ez 2011 online This is your deduction. 1040ez 2011 online Enter it on Schedule A (Form 1040), line 6   Note. 1040ez 2011 online Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. 1040ez 2011 online Your total deduction is the sum of the line 4 amounts for all of the properties. 1040ez 2011 online Real estate taxes for prior years. 1040ez 2011 online   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. 1040ez 2011 online Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. 1040ez 2011 online The buyer must add them to the cost of the property. 1040ez 2011 online The seller can deduct these taxes paid by the buyer. 1040ez 2011 online However, the seller must include them in the selling price. 1040ez 2011 online Examples. 1040ez 2011 online   The following examples illustrate how real estate taxes are divided between buyer and seller. 1040ez 2011 online Example 1. 1040ez 2011 online Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. 1040ez 2011 online The tax on their old home, sold on May 7, was $620. 1040ez 2011 online The tax on their new home, bought on May 3, was $732. 1040ez 2011 online Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. 1040ez 2011 online On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. 1040ez 2011 online Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). 1040ez 2011 online They figure their deduction for taxes on their old home as follows. 1040ez 2011 online Worksheet 22-1. 1040ez 2011 online Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. 1040ez 2011 online Enter the total real estate taxes for the real property tax year $620 2. 1040ez 2011 online Enter the number of days in the real property tax year that you owned the property 126 3. 1040ez 2011 online Divide line 2 by 365 (for leap years, divide line 2 by 366) . 1040ez 2011 online 3452 4. 1040ez 2011 online Multiply line 1 by line 3. 1040ez 2011 online This is your deduction. 1040ez 2011 online Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. 1040ez 2011 online (The buyers add the $214 to their cost of the home. 1040ez 2011 online ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). 1040ez 2011 online They figure their deduction for taxes on their new home as follows. 1040ez 2011 online Worksheet 22-1. 1040ez 2011 online Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. 1040ez 2011 online Enter the total real estate taxes for the real property tax year $732 2. 1040ez 2011 online Enter the number of days in the real property tax year that you owned the property 243 3. 1040ez 2011 online Divide line 2 by 365 (for leap years, divide line 2 by 366) . 1040ez 2011 online 6658 4. 1040ez 2011 online Multiply line 1 by line 3. 1040ez 2011 online This is your deduction. 1040ez 2011 online Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. 1040ez 2011 online (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. 1040ez 2011 online ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. 1040ez 2011 online They will enter this amount on Schedule A (Form 1040), line 6. 1040ez 2011 online Example 2. 1040ez 2011 online George and Helen Brown bought a new home on May 3, 2013. 1040ez 2011 online Their real property tax year for the new home is the calendar year. 1040ez 2011 online Real estate taxes for 2012 were assessed in their state on January 1, 2013. 1040ez 2011 online The taxes became due on May 31, 2013, and October 31, 2013. 1040ez 2011 online The Browns agreed to pay all taxes due after the date of purchase. 1040ez 2011 online Real estate taxes for 2012 were $680. 1040ez 2011 online They paid $340 on May 31, 2013, and $340 on October 31, 2013. 1040ez 2011 online These taxes were for the 2012 real property tax year. 1040ez 2011 online The Browns cannot deduct them since they did not own the property until 2013. 1040ez 2011 online Instead, they must add $680 to the cost of their new home. 1040ez 2011 online In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. 1040ez 2011 online The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). 1040ez 2011 online They will figure their 2014 deduction for taxes as follows. 1040ez 2011 online Worksheet 22-1. 1040ez 2011 online Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. 1040ez 2011 online Enter the total real estate taxes for the real property tax year $752 2. 1040ez 2011 online Enter the number of days in the real property tax year that you owned the property 243 3. 1040ez 2011 online Divide line 2 by 365 (for leap years, divide line 2 by 366) . 1040ez 2011 online 6658 4. 1040ez 2011 online Multiply line 1 by line 3. 1040ez 2011 online This is your deduction. 1040ez 2011 online Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. 1040ez 2011 online Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. 1040ez 2011 online This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. 1040ez 2011 online The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. 1040ez 2011 online The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. 1040ez 2011 online Form 1099-S. 1040ez 2011 online   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. 1040ez 2011 online Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. 1040ez 2011 online The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. 1040ez 2011 online   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. 1040ez 2011 online The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. 1040ez 2011 online See Refund (or rebate) , later. 1040ez 2011 online Taxes placed in escrow. 1040ez 2011 online   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. 1040ez 2011 online You can deduct only the real estate tax that the third party actually paid to the taxing authority. 1040ez 2011 online If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. 1040ez 2011 online Tenants by the entirety. 1040ez 2011 online   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. 1040ez 2011 online Divorced individuals. 1040ez 2011 online   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. 1040ez 2011 online See Taxes and insurance in chapter 18 for more information. 1040ez 2011 online Ministers' and military housing allowances. 1040ez 2011 online   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. 1040ez 2011 online Refund (or rebate). 1040ez 2011 online   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. 1040ez 2011 online If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. 1040ez 2011 online However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. 1040ez 2011 online For more information, see Recoveries in chapter 12. 1040ez 2011 online Table 22-1. 1040ez 2011 online Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. 1040ez 2011 online Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). 1040ez 2011 online     Fines and penalties. 1040ez 2011 online Income Taxes State and local income taxes. 1040ez 2011 online Federal income taxes. 1040ez 2011 online   Foreign income taxes. 1040ez 2011 online     Employee contributions to state funds listed under Contributions to state benefit funds . 1040ez 2011 online Employee contributions to private or voluntary disability plans. 1040ez 2011 online     State and local general sales taxes if you choose to deduct state and local income taxes. 1040ez 2011 online General Sales Taxes State and local general sales taxes, including compensating use taxes. 1040ez 2011 online State and local income taxes if you choose to deduct state and local general sales taxes. 1040ez 2011 online Other Taxes Taxes that are expenses of your trade or business. 1040ez 2011 online Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. 1040ez 2011 online   Taxes on property producing rent or royalty income. 1040ez 2011 online Per capita taxes. 1040ez 2011 online   Occupational taxes. 1040ez 2011 online See chapter 28. 1040ez 2011 online     One-half of self-employment tax paid. 1040ez 2011 online   Personal Property Taxes State and local personal property taxes. 1040ez 2011 online Customs duties that are not expenses of your trade or business or of producing income. 1040ez 2011 online Real Estate Taxes State and local real estate taxes. 1040ez 2011 online Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). 1040ez 2011 online   Foreign real estate taxes. 1040ez 2011 online Taxes for local benefits (with exceptions). 1040ez 2011 online See Real Estate-Related Items You Cannot Deduct . 1040ez 2011 online   Tenant's share of real estate taxes paid by  cooperative housing corporation. 1040ez 2011 online Trash and garbage pickup fees (with exceptions). 1040ez 2011 online See Real Estate-Related Items You Cannot Deduct . 1040ez 2011 online     Rent increase due to higher real estate taxes. 1040ez 2011 online     Homeowners' association charges. 1040ez 2011 online Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. 1040ez 2011 online Taxes for local benefits. 1040ez 2011 online Itemized charges for services (such as trash and garbage pickup fees). 1040ez 2011 online Transfer taxes (or stamp taxes). 1040ez 2011 online Rent increases due to higher real estate taxes. 1040ez 2011 online Homeowners' association charges. 1040ez 2011 online Taxes for local benefits. 1040ez 2011 online   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. 1040ez 2011 online These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. 1040ez 2011 online You should increase the basis of your property by the amount of the assessment. 1040ez 2011 online   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. 1040ez 2011 online If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. 1040ez 2011 online If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. 1040ez 2011 online    Taxes for local benefits may be included in your real estate tax bill. 1040ez 2011 online If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. 1040ez 2011 online You should use the rules above to determine if the local benefit tax is deductible. 1040ez 2011 online Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. 1040ez 2011 online Itemized charges for services. 1040ez 2011 online    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. 1040ez 2011 online For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). 1040ez 2011 online    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. 1040ez 2011 online If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. 1040ez 2011 online Exception. 1040ez 2011 online   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. 1040ez 2011 online Transfer taxes (or stamp taxes). 1040ez 2011 online   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. 1040ez 2011 online If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. 1040ez 2011 online If paid by the buyer, they are included in the cost basis of the property. 1040ez 2011 online Rent increase due to higher real estate taxes. 1040ez 2011 online   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. 1040ez 2011 online Homeowners' association charges. 1040ez 2011 online   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. 1040ez 2011 online Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. 1040ez 2011 online A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. 1040ez 2011 online For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. 1040ez 2011 online If the tax is partly based on value and partly based on other criteria, it may qualify in part. 1040ez 2011 online Example. 1040ez 2011 online Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. 1040ez 2011 online You paid $32 based on the value ($1,500) and weight (3,400 lbs. 1040ez 2011 online ) of your car. 1040ez 2011 online You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. 1040ez 2011 online The remaining $17 ($. 1040ez 2011 online 50 × 34), based on the weight, is not deductible. 1040ez 2011 online Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. 1040ez 2011 online Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. 1040ez 2011 online See Table 22-1. 1040ez 2011 online Taxes and fees that are generally not deductible include the following items. 1040ez 2011 online Employment taxes. 1040ez 2011 online This includes social security, Medicare, and railroad retirement taxes withheld from your pay. 1040ez 2011 online However, one-half of self-employment tax you pay is deductible. 1040ez 2011 online In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. 1040ez 2011 online For more information, see chapters 21 and 32. 1040ez 2011 online Estate, inheritance, legacy, or succession taxes. 1040ez 2011 online However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. 1040ez 2011 online In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. 1040ez 2011 online For more information, see Publication 559, Survivors, Executors, and Administrators. 1040ez 2011 online Federal income taxes. 1040ez 2011 online This includes income taxes withheld from your pay. 1040ez 2011 online Fines and penalties. 1040ez 2011 online You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. 1040ez 2011 online Gift taxes. 1040ez 2011 online License fees. 1040ez 2011 online You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). 1040ez 2011 online Per capita taxes. 1040ez 2011 online You cannot deduct state or local per capita taxes. 1040ez 2011 online Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. 1040ez 2011 online For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. 1040ez 2011 online Where To Deduct You deduct taxes on the following schedules. 1040ez 2011 online State and local income taxes. 1040ez 2011 online    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. 1040ez 2011 online Check box a on line 5. 1040ez 2011 online General sales taxes. 1040ez 2011 online   Sales taxes are deducted on Schedule A (Form 1040), line 5. 1040ez 2011 online You must check box b on line 5. 1040ez 2011 online If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. 1040ez 2011 online Foreign income taxes. 1040ez 2011 online   Generally, income taxes you pay to a foreign country or U. 1040ez 2011 online S. 1040ez 2011 online possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. 1040ez 2011 online S. 1040ez 2011 online income tax on Form 1040, line 47. 1040ez 2011 online To claim the credit, you may have to complete and attach Form 1116. 1040ez 2011 online For more information, see chapter 37, the Form 1040 instructions, or Publication 514. 1040ez 2011 online Real estate taxes and personal property taxes. 1040ez 2011 online    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). 1040ez 2011 online Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). 1040ez 2011 online Self-employment tax. 1040ez 2011 online    Deduct one-half of your self-employment tax on Form 1040, line 27. 1040ez 2011 online Other taxes. 1040ez 2011 online    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. 1040ez 2011 online Prev  Up  Next   Home   More Online Publications