§ 164. Taxes
(a)
General rule
Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section
212 (relating to expenses for production of income). Notwithstanding the preceding sentence, any tax (not described in the first sentence of this subsection) which is paid or accrued by the taxpayer in connection with an acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.
(b)
Definitions and special rules
For purposes of this section—
(1)
Personal property taxes
The term “personal property tax” means an ad valorem tax which is imposed on an annual basis in respect of personal property.
(2)
State or local taxes
A State or local tax includes only a tax imposed by a State, a possession of the United States, or a political subdivision of any of the foregoing, or by the District of Columbia.
(4)
Special rules for GST tax
(A)
In general
The GST tax imposed on income distributions is—
but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section
666 does not apply.
(B)
Special rule for tax paid before due date
Any tax referred to in subparagraph (A) imposed with respect to a transfer occurring during the taxable year of the distributee (or, in the case of a taxable termination, the trust) which is paid not later than the time prescribed by law (including extensions) for filing the return with respect to such transfer shall be treated as having been paid on the last day of the taxable year in which the transfer was made.
(5)
General sales taxes
For purposes of subsection (a)—
(A)
Election to deduct State and local sales taxes in lieu of State and local income taxes
At the election of the taxpayer for the taxable year, subsection (a) shall be applied—
(B)
Definition of general sales tax
The term “general sales tax” means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items.
(C)
Special rules for food, etc.
In the case of items of food, clothing, medical supplies, and motor vehicles—
(D)
Items taxed at different rates
Except in the case of a lower rate of tax applicable with respect to an item described in subparagraph (C), no deduction shall be allowed under this paragraph for any general sales tax imposed with respect to an item at a rate other than the general rate of tax.
(E)
Compensating use taxes
A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term “compensating use tax” means, with respect to any item, a tax which—
(F)
Special rule for motor vehicles
In the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate shall be treated as the rate of tax.
(G)
Separately stated general sales taxes
If the amount of any general sales tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (other than in connection with the consumer’s trade or business) to the seller, such amount shall be treated as a tax imposed on, and paid by, such consumer.
(H)
Amount of deduction may be determined under tables
(i)
In general
At the election of the taxpayer for the taxable year, the amount of the deduction allowed under this paragraph for such year shall be—
(ii)
Requirements for tables
The tables prescribed under clause (i)—
(II)
shall be based on the average consumption by taxpayers on a State-by-State basis (as determined by the Secretary) of items to which clause (i)(I) does not apply, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and
(6)
Qualified motor vehicle taxes
(A)
In general
For purposes of this section, the term “qualified motor vehicle taxes” means any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle.
(B)
Limitation based on vehicle price
The amount of any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle taken into account under subparagraph (A) shall not exceed the portion of such tax attributable to so much of the purchase price as does not exceed $49,500.
(C)
Income limitation
The amount otherwise taken into account under subparagraph (A) (after the application of subparagraph (B)) for any taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so treated as—
(D)
Qualified motor vehicle
For purposes of this paragraph—
(i)
In general
The term “qualified motor vehicle” means—
(I)
a passenger automobile or light truck which is treated as a motor vehicle for purposes of title II of the Clean Air Act, the gross vehicle weight rating of which is not more than 8,500 pounds, and the original use of which commences with the taxpayer,
(E)
Qualified motor vehicle taxes not included in cost of acquired property
The last sentence of subsection (a) shall not apply to any qualified motor vehicle taxes.
(c)
Deduction denied in case of certain taxes
No deduction shall be allowed for the following taxes:
(d)
Apportionment of taxes on real property between seller and purchaser
(1)
General rule
For purposes of subsection (a), if real property is sold during any real property tax year, then—
(2)
Special rules
(A)
in the case of any sale of real property, if—
(i)
a taxpayer may not, by reason of his method of accounting, deduct any amount for taxes unless paid, and
(ii)
the other party to the sale is (under the law imposing the real property tax) liable for the real property tax for the real property tax year,
then for purposes of subsection (a) the taxpayer shall be treated as having paid, on the date of the sale, so much of such tax as, under paragraph (1) of this subsection, is treated as imposed on the taxpayer. For purposes of the preceding sentence, if neither party is liable for the tax, then the party holding the property at the time the tax becomes a lien on the property shall be considered liable for the real property tax for the real property tax year.
(B)
In the case of any sale of real property, if the taxpayer’s taxable income for the taxable year during which the sale occurs is computed under an accrual method of accounting, and if no election under section
461
(c) (relating to the accrual of real property taxes) applies, then, for purposes of subsection (a), that portion of such tax which—
(ii)
may not, by reason of the taxpayer’s method of accounting, be deducted by the taxpayer for any taxable year,
shall be treated as having accrued on the date of the sale.
(e)
Taxes of shareholder paid by corporation
Where a corporation pays a tax imposed on a shareholder on his interest as a shareholder, and where the shareholder does not reimburse the corporation, then—
(f)
Deduction for one-half of self-employment taxes
(1)
In general
In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to one-half of the taxes imposed by section
1401 for such taxable year.
(g)
Cross references
(2)
For treatment of taxes imposed by Indian tribal governments (or their subdivisions), see section
7871.