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Irs Tax Return

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Irs Tax Return

Irs tax return 22. Irs tax return   Taxes Table of Contents IntroductionIndian tribal government. Irs tax return 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. Irs tax return Real Estate TaxesReal estate taxes for prior years. Irs tax return Examples. Irs tax return Form 1099-S. Irs tax return 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). Irs tax return It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. Irs tax return This chapter covers the following topics. Irs tax return Income taxes (federal, state, local, and foreign). Irs tax return General sales taxes (state and local). Irs tax return Real estate taxes (state, local, and foreign). Irs tax return Personal property taxes (state and local). Irs tax return Taxes and fees you cannot deduct. Irs tax return Use Table 22-1 as a guide to determine which taxes you can deduct. Irs tax return The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. Irs tax return Business taxes. Irs tax return   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. Irs tax return For information on these taxes, see Publication 535, Business Expenses. Irs tax return State or local taxes. Irs tax return   These are taxes imposed by the 50 states, U. Irs tax return S. Irs tax return possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. Irs tax return Indian tribal government. Irs tax return   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. Irs tax return 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. Irs tax return General sales taxes. Irs tax return   These are taxes imposed at one rate on retail sales of a broad range of classes of items. Irs tax return Foreign taxes. Irs tax return   These are taxes imposed by a foreign country or any of its political subdivisions. Irs tax return 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. Irs tax return The tax must be imposed on you. Irs tax return You must pay the tax during your tax year. Irs tax return The tax must be imposed on you. Irs tax return   In general, you can deduct only taxes imposed on you. Irs tax return   Generally, you can deduct property taxes only if you are an owner of the property. Irs tax return 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. Irs tax return You must pay the tax during your tax year. Irs tax return   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. Irs tax return 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. Irs tax return 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. Irs tax return 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). Irs tax return See Publication 538, Accounting Periods and Methods, for details. Irs tax return    If you use an accrual method of accounting, see Publication 538 for more information. Irs tax return Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. Irs tax return State and Local Income Taxes You can deduct state and local income taxes. Irs tax return However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. Irs tax return See General Sales Taxes , later. Irs tax return Exception. Irs tax return    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. Irs tax return 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. Irs tax return What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. Irs tax return Withheld taxes. Irs tax return   You can deduct state and local income taxes withheld from your salary in the year they are withheld. Irs tax return Your Form(s) W-2 will show these amounts. Irs tax return Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. Irs tax return Estimated tax payments. Irs tax return   You can deduct estimated tax payments you made during the year to a state or local government. Irs tax return However, you must have a reasonable basis for making the estimated tax payments. Irs tax return Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. Irs tax return For example, you made an estimated state income tax payment. Irs tax return However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. Irs tax return You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. Irs tax return Refund applied to taxes. Irs tax return   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. Irs tax return    Do not reduce your deduction by either of the following items. Irs tax return Any state or local income tax refund (or credit) you expect to receive for 2013. Irs tax return Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. Irs tax return   However, part or all of this refund (or credit) may be taxable. Irs tax return See Refund (or credit) of state or local income taxes , later. Irs tax return Separate federal returns. Irs tax return   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. Irs tax return Joint state and local returns. Irs tax return   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. Irs tax return 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. Irs tax return However, you cannot deduct more than the amount you actually paid during the year. Irs tax return 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. Irs tax return If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. Irs tax return Joint federal return. Irs tax return   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. Irs tax return Contributions to state benefit funds. Irs tax return    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. Irs tax return For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. Irs tax return Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. Irs tax return Alaska Unemployment Compensation Fund. Irs tax return California Nonoccupational Disability Benefit Fund. Irs tax return New Jersey Nonoccupational Disability Benefit Fund. Irs tax return New Jersey Unemployment Compensation Fund. Irs tax return New York Nonoccupational Disability Benefit Fund. Irs tax return Pennsylvania Unemployment Compensation Fund. Irs tax return Rhode Island Temporary Disability Benefit Fund. Irs tax return Washington State Supplemental Workmen's Compensation Fund. Irs tax return    Employee contributions to private or voluntary disability plans are not deductible. Irs tax return Refund (or credit) of state or local income taxes. Irs tax return   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. Irs tax return 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. Irs tax return If you did not itemize your deductions in the previous year, do not include the refund in income. Irs tax return 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. Irs tax return For a discussion of how much to include, see Recoveries in chapter 12. Irs tax return 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. Irs tax return S. Irs tax return possession. Irs tax return However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Irs tax return S. Irs tax return tax under the foreign earned income exclusion or the foreign housing exclusion. Irs tax return For information on these exclusions, see Publication 54, Tax Guide for U. Irs tax return S. Irs tax return Citizens and Resident Aliens Abroad. Irs tax return For information on the foreign tax credit, see Publication 514. Irs tax return 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. Irs tax return You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. Irs tax return Actual expenses. Irs tax return   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. Irs tax return 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. Irs tax return 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. Irs tax return If you use the actual expenses method, you must have receipts to show the general sales taxes paid. Irs tax return Do not include sales taxes paid on items used in your trade or business. Irs tax return Motor vehicles. Irs tax return   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Irs tax return This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. Irs tax return Optional sales tax tables. Irs tax return   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). Irs tax return You may also be able to add the state and local general sales taxes paid on certain specified items. Irs tax return   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. Irs tax return Your income is your adjusted gross income plus any nontaxable items such as the following. Irs tax return Tax-exempt interest. Irs tax return Veterans' benefits. Irs tax return Nontaxable combat pay. Irs tax return Workers' compensation. Irs tax return Nontaxable part of social security and railroad retirement benefits. Irs tax return Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. Irs tax return Public assistance payments. Irs tax return 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. Irs tax return See the Instructions for Schedule A (Form 1040), line 5, for details. Irs tax return Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. Irs tax return 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. Irs tax return Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Irs tax return 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. Irs tax return For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. Irs tax return Tenant-shareholders in a cooperative housing corporation. Irs tax return   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. Irs tax return The corporation should provide you with a statement showing your share of the taxes. Irs tax return For more information, see Special Rules for Cooperatives in Publication 530. Irs tax return Division of real estate taxes between buyers and sellers. Irs tax return   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. Irs tax return   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. Irs tax return The seller is treated as paying the taxes up to, but not including, the date of sale. Irs tax return The buyer is treated as paying the taxes beginning with the date of sale. Irs tax return This applies regardless of the lien dates under local law. Irs tax return Generally, this information is included on the settlement statement provided at the closing. Irs tax return    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. Irs tax return This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. Irs tax return However, you must also include the amount of that tax in the selling price of the property. Irs tax return The buyer must include the same amount in his or her cost of the property. Irs tax return   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. Irs tax return Worksheet 22-1. Irs tax return Figuring Your Real Estate Tax Deduction 1. Irs tax return Enter the total real estate taxes for the real property tax year   2. Irs tax return Enter the number of days in the real property tax year that you owned the property   3. Irs tax return Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs tax return 4. Irs tax return Multiply line 1 by line 3. Irs tax return This is your deduction. Irs tax return Enter it on Schedule A (Form 1040), line 6   Note. Irs tax return Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. Irs tax return Your total deduction is the sum of the line 4 amounts for all of the properties. Irs tax return Real estate taxes for prior years. Irs tax return   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. Irs tax return Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. Irs tax return The buyer must add them to the cost of the property. Irs tax return The seller can deduct these taxes paid by the buyer. Irs tax return However, the seller must include them in the selling price. Irs tax return Examples. Irs tax return   The following examples illustrate how real estate taxes are divided between buyer and seller. Irs tax return Example 1. Irs tax return 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. Irs tax return The tax on their old home, sold on May 7, was $620. Irs tax return The tax on their new home, bought on May 3, was $732. Irs tax return 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. Irs tax return 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. Irs tax return 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). Irs tax return They figure their deduction for taxes on their old home as follows. Irs tax return Worksheet 22-1. Irs tax return Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. Irs tax return Enter the total real estate taxes for the real property tax year $620 2. Irs tax return Enter the number of days in the real property tax year that you owned the property 126 3. Irs tax return Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs tax return 3452 4. Irs tax return Multiply line 1 by line 3. Irs tax return This is your deduction. Irs tax return 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. Irs tax return (The buyers add the $214 to their cost of the home. Irs tax return ) 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). Irs tax return They figure their deduction for taxes on their new home as follows. Irs tax return Worksheet 22-1. Irs tax return Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs tax return Enter the total real estate taxes for the real property tax year $732 2. Irs tax return Enter the number of days in the real property tax year that you owned the property 243 3. Irs tax return Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs tax return 6658 4. Irs tax return Multiply line 1 by line 3. Irs tax return This is your deduction. Irs tax return 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. Irs tax return (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. Irs tax return ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. Irs tax return They will enter this amount on Schedule A (Form 1040), line 6. Irs tax return Example 2. Irs tax return George and Helen Brown bought a new home on May 3, 2013. Irs tax return Their real property tax year for the new home is the calendar year. Irs tax return Real estate taxes for 2012 were assessed in their state on January 1, 2013. Irs tax return The taxes became due on May 31, 2013, and October 31, 2013. Irs tax return The Browns agreed to pay all taxes due after the date of purchase. Irs tax return Real estate taxes for 2012 were $680. Irs tax return They paid $340 on May 31, 2013, and $340 on October 31, 2013. Irs tax return These taxes were for the 2012 real property tax year. Irs tax return The Browns cannot deduct them since they did not own the property until 2013. Irs tax return Instead, they must add $680 to the cost of their new home. Irs tax return In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. Irs tax return The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). Irs tax return They will figure their 2014 deduction for taxes as follows. Irs tax return Worksheet 22-1. Irs tax return Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs tax return Enter the total real estate taxes for the real property tax year $752 2. Irs tax return Enter the number of days in the real property tax year that you owned the property 243 3. Irs tax return Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs tax return 6658 4. Irs tax return Multiply line 1 by line 3. Irs tax return This is your deduction. Irs tax return 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. Irs tax return 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. Irs tax return This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. Irs tax return The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. Irs tax return The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. Irs tax return Form 1099-S. Irs tax return   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. Irs tax return 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. Irs tax return 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. Irs tax return   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. Irs tax return 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. Irs tax return See Refund (or rebate) , later. Irs tax return Taxes placed in escrow. Irs tax return   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. Irs tax return You can deduct only the real estate tax that the third party actually paid to the taxing authority. Irs tax return 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. Irs tax return Tenants by the entirety. Irs tax return   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. Irs tax return Divorced individuals. Irs tax return   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. Irs tax return See Taxes and insurance in chapter 18 for more information. Irs tax return Ministers' and military housing allowances. Irs tax return   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. Irs tax return Refund (or rebate). Irs tax return   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. Irs tax return 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. Irs tax return However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. Irs tax return For more information, see Recoveries in chapter 12. Irs tax return Table 22-1. Irs tax return 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. Irs tax return 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 ). Irs tax return     Fines and penalties. Irs tax return Income Taxes State and local income taxes. Irs tax return Federal income taxes. Irs tax return   Foreign income taxes. Irs tax return     Employee contributions to state funds listed under Contributions to state benefit funds . Irs tax return Employee contributions to private or voluntary disability plans. Irs tax return     State and local general sales taxes if you choose to deduct state and local income taxes. Irs tax return General Sales Taxes State and local general sales taxes, including compensating use taxes. Irs tax return State and local income taxes if you choose to deduct state and local general sales taxes. Irs tax return Other Taxes Taxes that are expenses of your trade or business. Irs tax return Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. Irs tax return   Taxes on property producing rent or royalty income. Irs tax return Per capita taxes. Irs tax return   Occupational taxes. Irs tax return See chapter 28. Irs tax return     One-half of self-employment tax paid. Irs tax return   Personal Property Taxes State and local personal property taxes. Irs tax return Customs duties that are not expenses of your trade or business or of producing income. Irs tax return Real Estate Taxes State and local real estate taxes. Irs tax return Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). Irs tax return   Foreign real estate taxes. Irs tax return Taxes for local benefits (with exceptions). Irs tax return See Real Estate-Related Items You Cannot Deduct . Irs tax return   Tenant's share of real estate taxes paid by  cooperative housing corporation. Irs tax return Trash and garbage pickup fees (with exceptions). Irs tax return See Real Estate-Related Items You Cannot Deduct . Irs tax return     Rent increase due to higher real estate taxes. Irs tax return     Homeowners' association charges. Irs tax return Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. Irs tax return Taxes for local benefits. Irs tax return Itemized charges for services (such as trash and garbage pickup fees). Irs tax return Transfer taxes (or stamp taxes). Irs tax return Rent increases due to higher real estate taxes. Irs tax return Homeowners' association charges. Irs tax return Taxes for local benefits. Irs tax return   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. Irs tax return These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. Irs tax return You should increase the basis of your property by the amount of the assessment. Irs tax return   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. Irs tax return 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. Irs tax return If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. Irs tax return    Taxes for local benefits may be included in your real estate tax bill. Irs tax return If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs tax return You should use the rules above to determine if the local benefit tax is deductible. Irs tax return Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Irs tax return Itemized charges for services. Irs tax return    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. Irs tax return 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). Irs tax return    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. Irs tax return If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs tax return Exception. Irs tax return   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. Irs tax return Transfer taxes (or stamp taxes). Irs tax return   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. Irs tax return If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. Irs tax return If paid by the buyer, they are included in the cost basis of the property. Irs tax return Rent increase due to higher real estate taxes. Irs tax return   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. Irs tax return Homeowners' association charges. Irs tax return   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. Irs tax return 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. Irs tax return A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. Irs tax return 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. Irs tax return If the tax is partly based on value and partly based on other criteria, it may qualify in part. Irs tax return Example. Irs tax return Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. Irs tax return You paid $32 based on the value ($1,500) and weight (3,400 lbs. Irs tax return ) of your car. Irs tax return You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. Irs tax return The remaining $17 ($. Irs tax return 50 × 34), based on the weight, is not deductible. Irs tax return 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. Irs tax return Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. Irs tax return See Table 22-1. Irs tax return Taxes and fees that are generally not deductible include the following items. Irs tax return Employment taxes. Irs tax return This includes social security, Medicare, and railroad retirement taxes withheld from your pay. Irs tax return However, one-half of self-employment tax you pay is deductible. Irs tax return 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. Irs tax return For more information, see chapters 21 and 32. Irs tax return Estate, inheritance, legacy, or succession taxes. Irs tax return 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. Irs tax return In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. Irs tax return For more information, see Publication 559, Survivors, Executors, and Administrators. Irs tax return Federal income taxes. Irs tax return This includes income taxes withheld from your pay. Irs tax return Fines and penalties. Irs tax return You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. Irs tax return Gift taxes. Irs tax return License fees. Irs tax return You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). Irs tax return Per capita taxes. Irs tax return You cannot deduct state or local per capita taxes. Irs tax return 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. Irs tax return For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. Irs tax return Where To Deduct You deduct taxes on the following schedules. Irs tax return State and local income taxes. Irs tax return    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. Irs tax return Check box a on line 5. Irs tax return General sales taxes. Irs tax return   Sales taxes are deducted on Schedule A (Form 1040), line 5. Irs tax return You must check box b on line 5. Irs tax return If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. Irs tax return Foreign income taxes. Irs tax return   Generally, income taxes you pay to a foreign country or U. Irs tax return S. Irs tax return possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. Irs tax return S. Irs tax return income tax on Form 1040, line 47. Irs tax return To claim the credit, you may have to complete and attach Form 1116. Irs tax return For more information, see chapter 37, the Form 1040 instructions, or Publication 514. Irs tax return Real estate taxes and personal property taxes. Irs tax return    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). Irs tax return Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). Irs tax return Self-employment tax. Irs tax return    Deduct one-half of your self-employment tax on Form 1040, line 27. Irs tax return Other taxes. Irs tax return    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. Irs tax return Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 06-Dec-2013

The Irs Tax Return

Irs tax return Car Expenses Table of Contents Introduction Depreciation of CarSpecial Depreciation Allowance Depreciation Limit Amended Return Election Not To Claim Special Allowance If you purchased a car after September 10, 2001, for use in your business (or as an employee) and figure your deductible expenses using the actual car expense method, new law contains provisions that may affect your depreciation deduction for that car. Irs tax return Publication 463, Travel, Entertainment, Gift, and Car Expenses, contains information on figuring depreciation on your car. Irs tax return However, Publication 463 does not contain the new provisions because it was printed before the law was enacted. Irs tax return The new provisions are in the Supplement to Publication 463, which is reprinted below. Irs tax return Supplement to Publication 463 Travel, Entertainment, Gift, and Car Expenses   Introduction This supplemental publication is for taxpayers who purchased a car for business purposes after September 10, 2001, and figure their deductible expenses, including a deduction for depreciation, using the actual car expense method. Irs tax return After Publication 463 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Irs tax return Certain provisions of this new law may reduce your taxes for 2001. Irs tax return The new law contains the following provisions. Irs tax return A new depreciation deduction, the special depreciation allowance. Irs tax return An increase in the limit on depreciation for any car for which you claim the new special depreciation allowance. Irs tax return If you have already filed your 2001 return, you may wish to file an amended return to claim any of these benefits. Irs tax return See Amended Return, later. Irs tax return Depreciation of Car If you used the actual car expense method to figure your deduction for a car you own and use in your business (or as an employee), you generally can claim a depreciation deduction. Irs tax return However, there is a limit on the depreciation deduction you can take for your car each year. Irs tax return See Depreciation Limit later. Irs tax return Special Depreciation Allowance The new law allows you to claim a special depreciation allowance. Irs tax return This special allowance is a deduction equal to 30% of the depreciable basis of qualified property. Irs tax return You figure the amount of the special depreciation allowance after any section 179 deduction you choose to claim, but before figuring your regular depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS). Irs tax return See Depreciation Deduction under Actual Car Expenses in chapter 4 of Publication 463 for information about MACRS. Irs tax return You can claim the special depreciation allowance only for the year the qualified property is placed in service. Irs tax return Qualified property. Irs tax return   Qualified property includes a car (any four-wheeled vehicle, including a truck or van not more than 6,000 pounds, that is made primarily for use on public streets, roads, and highways) that meets all of the following requirements. Irs tax return You bought it new. Irs tax return You bought it after September 10, 2001. Irs tax return (But a car is not qualified property if a binding written contract for you to buy the car was in effect before September 11, 2001. Irs tax return ) You began using it for business after September 10, 2001, and used it more than 50% in a qualified business use. Irs tax return Example. Irs tax return Bob bought a new car on October 15, 2001, for $20,000 and placed it in service immediately, using it 75% for business. Irs tax return Bob's car is qualified property. Irs tax return Bob chooses not to take a section 179 deduction for the car. Irs tax return He does claim the new special depreciation allowance. Irs tax return Bob first must figure the car's depreciable basis, which is $15,000 ($20,000 × . Irs tax return 75). Irs tax return He then figures the special depreciation allowance of $4,500 ($15,000 × . Irs tax return 30). Irs tax return The remaining depreciable basis of $10,500 ($15,000 - $4,500) is depreciated using MACRS (200% declining balance method, half-year convention) and results in a deduction of $2,100 ($10,500 × . Irs tax return 20), for a total depreciation deduction for 2001 of $6,600 ($4,500 + $2,100). Irs tax return However, Bob's depreciation deduction is limited to $5,745 ($7,660 × . Irs tax return 75), as discussed next. Irs tax return Depreciation Limit The limit on your depreciation deduction for 2001 is increased to $7,660 for a car that is qualified property (defined above) and for which you claim the special depreciation allowance. Irs tax return The limit is increased to $23,080 if the car is an electric car. Irs tax return The section 179 deduction is treated as depreciation for purposes of this limit. Irs tax return If you use a car less than 100% in your business or work, the limit is $7,660 (or $23,080 for an electric car) multiplied by the percentage of business and investment use during the year. Irs tax return For cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit remains $3,060 ($9,280 for electric cars). Irs tax return Amended Return If you filed your 2001 calendar year return before June 1, 2002, and did not claim the new special depreciation allowance for a qualified car, you can claim it by filing an amended return on Form 1040X, Amended U. Irs tax return S. Irs tax return Individual Income Tax Return, by April 15, 2003. Irs tax return At the top of the Form 1040X, print “Filed pursuant to Revenue Procedure 2002–33. Irs tax return ” If you are an employee, attach Form 2106, Employee Business Expenses (revised March 2002). Irs tax return If you are self-employed, attach Form 4562, Depreciation and Amortization (revised March 2002). Irs tax return Or, you can claim the special depreciation allowance by filing Form 3115, Application for Change in Accounting Method, with your 2002 return. Irs tax return For details, see Revenue Procedure 2002–33. Irs tax return (But, filing Form 1040X for 2001 enables you to claim the special allowance earlier than attaching Form 3115 to your 2002 return. Irs tax return ) You cannot claim the special depreciation allowance on an amended return (or by using Form 3115) if you made, or are treated as having made, the election not to claim it described later. Irs tax return Example. Irs tax return The facts are the same as in the previous example except that Bob filed his original 2001 income tax return on April 15, 2002, and claimed a $3,000 ($20,000 x . Irs tax return 75 x . Irs tax return 20) depreciation deduction for his new car using MACRS. Irs tax return Bob now wishes to claim the special depreciation allowance for his new car on an amended 2001 return. Irs tax return Bob, who is an employee, files Form 1040X, by April 15, 2003, with an updated Form 2106 (revised March 2002) attached, increasing his total depreciation deduction to $5,745, as figured in the earlier example. Irs tax return Bob's new filled-in Form 2106 is shown later. Irs tax return Election Not To Claim Special Allowance You can elect not to claim the special depreciation allowance for a car by making a statement attached to, or written on, your return indicating that you are electing not to claim the special depreciation allowance for 5-year property. Irs tax return As a general rule, you must make this election by the due date (including extensions) of your return. Irs tax return You can have an automatic extension of 6 months from the due date of your return (excluding extensions) to make the election with an amended return. Irs tax return To get this extension, you must have filed your original return by the due date (including extensions). Irs tax return At the top of the statement, print “Filed pursuant to section 301. Irs tax return 9100–2. Irs tax return ” If you elect not to claim the special depreciation allowance for a car, you cannot claim it for any other 5-year property placed in service during the same year. Irs tax return Unless you elect (or are treated as electing) not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Irs tax return Deemed election for return filed before June 1, 2002. Irs tax return   If you did not make the election not to claim the special depreciation allowance in the time and manner described above, you will still be treated as electing not to claim it if all of the following apply. Irs tax return You filed your 2001 return before June 1, 2002. Irs tax return You claimed depreciation on your return but did not claim the special depreciation allowance. Irs tax return You did not file an amended 2001 return by April 15, 2003, or a Form 3115 with your 2002 return, to claim the special depreciation allowance. Irs tax return Form 2106, Page 1, for Bob Smith Form 2106, Page 2, for Bob Smith Prev  Up  Next   Home   More Online Publications