How to Deduct State and Local Taxes: A Simple Guide for Personal Expenses

Personal Expenses Only

This guide focuses on personal expenses on your individual tax return, not business taxes. Business-related taxes are handled differently and appear on forms like Schedule C, E, or F—not on Schedule A. Schedule A is where you report personal expenses the IRS allows you to deduct if you choose to itemize instead of taking the standard deduction. Eligible expenses can include State and Local Taxes, mortgage interest, charitable contributions, and certain medical expenses. This guide covers deductions you can claim for yourself, your spouse, or your dependents. Think of Schedule A as your personal deduction tracker—it shows which expenses can reduce your taxable income.

You Must Itemize to Deduct State and Local Taxes

As noted in Section 1, State and Local Taxes and other personal expenses are only deductible if you itemize rather than taking the standard deduction. Itemizing means totaling all your eligible personal expenses—such as State and Local Taxes, property taxes, mortgage interest, charitable donations, and certain medical expenses—to see if they exceed the standard deduction. If your total itemized deductions are smaller than the standard deduction, taking the standard deduction is usually simpler and more beneficial.

What You Can and Cannot Deduct

Not all taxes you pay are deductible, so it’s important to know which ones qualify. You can deduct state and local income taxes, which are amounts withheld from your paycheck or paid through estimated tax payments, or choose instead to deduct state and local sales taxes, including sales taxes on major purchases like vehicles, boats, or home renovations, as well as general sales tax if you keep receipts or use IRS optional sales tax tables. You can also deduct property taxes on real estate you own, including your home, as long as the taxes are assessed uniformly and used for general community services, such as schools, roads, and public safety—not for personal improvements. Additionally, personal property taxes based on the value of items such as vehicles or boats may be deductible if assessed annually and based on value.

Some taxes are not deductible, even if they seem related. These include federal income taxes, Social Security and Medicare taxes, license fees, fines or penalties, registration fees based on weight or value, and taxes paid for property improvements or on someone else’s behalf. Keeping organized records—like W-2s, 1099s, property and personal property tax bills, sales tax receipts, and documentation of estimated payments—helps ensure you claim the deductions you are entitled to while avoiding items the IRS does not allow.

Limits and Rules for Deducting State and Local Taxes

When deducting State and Local Taxes (SALT) on Schedule A, there are limits on how much you can claim, which may vary depending on the year and your situation. These limits generally apply to the total of state and local income, sales, and property taxes. Some reductions or phaseouts may apply based on income, and certain taxpayers may not be able to claim the full amount.

Because rules and limits can change, it’s important to check the current IRS guidelines or consult a tax professional to determine how much of your SALT payments are deductible. Staying informed ensures you can maximize your deductions while complying with IRS rules.

Deciding Between Itemizing and the Standard Deduction

Deducting State and Local Taxes can reduce your taxable income, but only if your total itemized deductions exceed the standard deduction. Taxpayers who benefit most typically include homeowners, people in high-tax states, or anyone paying substantial state, local, or personal property taxes. Renters or taxpayers with smaller deductions often save more by taking the standard deduction. Comparing your total deductions carefully will help you determine which option provides the greater tax benefit.

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The information provided in this blog post is intended for general informational purposes only and should not be construed as legal or tax advice. While every effort has been made to ensure the accuracy of the information, tax laws and regulations are subject to change, and individual circumstances may vary. For personalized advice and to ensure compliance with current tax laws, it is strongly recommended that you consult with a qualified tax professional, financial advisor, or legal counsel. The author and publisher of this blog assume no responsibility for any errors or omissions, or for any actions taken based on the information contained herein.