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February 3, 2024
Question

Received an inheritance share from sale of parent's property and a CA sales tax portion was paid. Is that CA sales tax amount a deduction on my Federal tax form?

  • February 3, 2024
  • 2 replies
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    2 replies

    February 5, 2024

    Whether you can deduct the sales tax paid on the proceeds of the sale depends on how you elect to report your sales taxes. The Internal Revenue Service (IRS) permits you to write off either your state and local income tax or sales taxes (not both, with some exceptions) when itemizing your deductions. People who live in a state that does not impose income taxes often benefit most from this deduction.

     

    See this TurboTax tips article for more information about how to deduct sales taxes.

     

    To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

     

    See this IRS webpage for more information.

     

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    Employee
    February 5, 2024

    Sales tax?  You mean like the extra 6% on a bag of potato chips?

     

    Do you mean capital gains tax?  Sometimes in the state of California, the closing agent is required to withhold capital gains tax on the sale.  When you report the sale on your California tax return, if the tax that was withheld is more than you owe, you get a refund.

    https://www.ftb.ca.gov/pay/withholding/real-estate-withholding.html

     

    When you sell an inherited home it is likely that you owe no capital gains tax to either the IRS or California, but California makes you do the extra paperwork.    This would be a state and local income tax deduction on your federal return, but it is limited by the $10,000 cap on all state and local taxes (the SALT cap).  

     

    Can you clarify the circumstances?

    February 5, 2024

    The taxed amount was about 3.5%

    Employee
    February 5, 2024

    @heartgems68 wrote:

    The taxed amount was about 3.5%


    OK, as I suspected, this is not a "sales tax."  This is a mandatory withholding of capital gains tax, in case the seller fails to report the sale on their tax return, at California keeps something.  However, if you don't owe the tax, you can get a refund. 

     

    Are you a resident of California?

    https://www.car.org/-/media/CAR/Documents/Transaction-Center/PDF/QUICK-GUIDES/Quick-Guide---CA-Withholding-Tax-on-Sale-of-Real-Property.pdf?la=en&hash=1F34463F01B068F7DE11E17BDBF7BEED9AA69EAC