Are You Able to Write Off Excise Tax on a Home Sale?
- Taxes provided for in the Constitution are generally divided into charges that are direct or indirect. Sales tax, income tax and property tax are each examples of direct taxes. The amount of the tax is determined directly by the price of the object, the amount of money the individual makes or the value of the property being taxed. Indirect taxes are duties that the federal, state or local government add to an item. The amount of the tax remains constant. For instance, the price of a gallon of gasoline includes a portion for the state's excise tax. Even when the price of a gallon of gas goes up or down, the excise amount remains the same, since what is being taxed is the amount of the gas, not its price to the dealer. Direct taxes like sales taxes are usually not included in the price of the item, but added on at the time of purchase. Excise taxes on cigarettes, alcohol and gasoline are often referred to as "sin taxes."
- A second example of an excise tax is simply any tax that a state refers to as an "excise tax" in its statutes. For instance, most states call the tax paid on a vehicle purchase a sales tax. In Massachusetts, however, it is called an excise tax in the state's statutes, even though it functions exactly the same way as does a direct sales tax.
- Thirty-five states and the District of Columbus impose a sales tax on the seller of a property, in addition to the regular sales tax that the buyer has to pay. This additional tax is a real estate excise tax, and it is levied against the full selling price of property plus any liens, mortgages or debts on it. The tax ranges from a low of 0.01 percent in Colorado to a high of 2.2 percent in D.C. The seller is responsible for paying the tax at the time of closing, but if he does not, the government may place a lien for the amount on the property (thereby making the debt the responsibility of the property's new owner).
- Excise tax on a home sale is considered a type of sales tax rather than a property tax. Furthermore, unlike traditional excise taxes that are calculated as part of the retail price of the item, excise tax on a home sale is not part of the listed price, but part of the closing costs. Therefore, since it is legal to deduct state and local sales taxes as itemized on Schedule A on your federal Form 1040 income tax return, it is legal to include the excise tax as a deduction.