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Itemized Deductions – Taxes Paid 2025 Guide
The IRS allows certain taxes to be deducted when you itemize, but limits and exceptions apply. Our Taxes Paid Guide for 2025 explains the rules for state, local, real estate, and personal property taxes so you can understand exactly what qualifies.
Limit on Taxes Paid
The itemized deduction for state and local taxes (SALT) is limited to $40,000 ($20,000 if married filing separately). This includes state income taxes or general sales taxes, real estate taxes, and personal property taxes.
State and Local Taxes
- State and local income taxes: Includes withholding reported on W-2s, 1099s, and estimated tax payments.
- General sales taxes: Taxpayers can elect to deduct sales taxes instead of income taxes using either actual receipts or IRS sales tax tables (with adjustments for big-ticket items like cars, boats, or homes).
Real Estate Taxes
Real estate taxes are deductible if based on the assessed value of the property you own. Mortgage escrow payments are deductible only when the taxes are actually paid to the taxing authority. Foreign property taxes are not deductible.
Special rules:
- Charges for trash, sewer, and water are not deductible.
- Special assessments for improvements (like a new sidewalk) are not deductible but increase your basis.
- Assessments for maintenance of existing facilities are deductible.
- If you sell a property mid-year, the deduction must be split between seller and buyer based on ownership dates.
Personal Property Taxes
Taxes on personal property (like vehicles) are deductible only if based solely on value and assessed annually.
Example: A car registration fee partly based on weight and partly on value allows only the value portion to be deductible.
Other Rules
- Delinquent taxes: If the buyer pays the seller’s delinquent property taxes, they must add them to the property’s basis, not deduct them.
- Refunds and rebates: Refunds for real estate taxes reduce the deduction for that year, or may be taxable income if received in later years where a tax benefit was claimed.
- Foreign taxes: You can choose to deduct foreign income taxes or claim a foreign tax credit, but not both.
Download the 2025 Itemized Deductions – Taxes Paid Guide or contact us for expert help in maximizing your allowable deductions.