Thursday, January 10, 2013

State and Local Tax Deduction

State and Local Tax Deductions 

History and Rationale of State and Local Tax Deduction - Best justified as a concession to Federalism. The Federal Government recognizes by this deduction that state and local governments have their own revenue needs. They can get money how they please. Consents to assess federal taxes only against the income that remains after state and local governments have exacted their assessments. POLICY: Equality issues if states provide different services and assess different kinds of taxes.

What Kind of State and Local Taxes are Deductible

Generally, § 164 provides that:
State and local income taxes, OR Sales tax , PICK ONE Real property taxes, and Personal property taxes are deductible, as are a few less general types of tax

For example: Interest imposed on real property, for the general public welfare. Then it is property tax and is deductible. Distinguish from fees that increase that value of the property assessed. Allows foreign taxes, this is controversial. Not a lot of wealth taxes, other countries do. What kinds of wealth taxes are deductible?

§ 164(b)(1) taxes must be on the value of something, not the weight or use for example. Presumably the idea is to allow deduction only of taxes imposed for a general-revenue raising purposes, rather than to recoup for externalities such as increased road costs due to the use of heavy vehicles

§ 164(c)(1) disallows deductions for assessments that tend to increase the value of the property assessed. For example, fees for new sidewalks or other improvements around a house that would increase its value for resale.f. What do we mean by tax: taxes and fees. There is a big distinction. Taxes are charges for primarily raising state revenue

NO FEES FOR USE or STATE PRIVILEGE! For example access to parks or a state university. These are not the type of state and local taxes that are deductible on a federal return. 

2 comments:

Rachel Scott said...

That is a good news for the tax payers i think that will help them out in much more savings now.

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