[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.164-1]

[Page 845-846]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
COMPUTATION OF TAXABLE INCOME--Table of Contents
 
Sec. 1.164-1  Deduction for taxes.

    (a) In general. Only the following taxes shall be allowed as a 
deduction under this section for the taxable year within which paid or 
accrued, according to the method of accounting used in computing taxable 
income:
    (1) State and local, and foreign, real property taxes.
    (2) State and local personal property taxes.
    (3) State and local, and foreign, income, war profits, and excess 
profits taxes.
    (4) State and local general sales taxes.
    (5) State and local taxes on the sale of gasoline, diesel fuel, and 
other motor fuels.

In addition, there shall be allowed as a deduction under this section 
State and local and foreign taxes not described in subparagraphs (1) 
through (5) of this paragraph 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). For 
example, dealers or investors in securities and dealers or investors in 
real estate may deduct State stock transfer and real estate transfer 
taxes, respectively, under section 164, to the extent they are expenses 
incurred in carrying on a trade or business or an activity for the 
production of income. In general, taxes are deductible only by the 
person upon whom they are imposed. However, see Sec. 1.164-5 in the case 
of certain taxes paid by the consumer. Also, in the case of a qualified 
State individual income tax (as defined in section 6362 and the 
regulations thereunder) which is determined by reference to a percentage 
of the Federal income tax (pursuant to section 6362 (c)), an accrual 
method taxpayer shall use the cash receipts and disbursements method to 
compute the amount of his deduction therefor. Thus, the deduction under 
section 164 is in the amount actually paid with respect to the qualified 
tax, rather than the amount accrued with respect thereto, during the 
taxable year even though the taxpayer uses the accrual method of 
accounting for other purposes. In addition, see paragraph (f)(1) of 
Sec. 301.6361-1 of this chapter (Regulations on Procedure and 
Administration) with respect to rules relating to allocation and 
reallocation of amounts collected on account of the Federal income tax 
and qualified taxes.
    (b) Taxable years beginning before January 1, 1964. For taxable 
years beginning before January 1, 1964, except as otherwise provided in 
Secs. 1.164-2 through 1.164-8, inclusive, taxes imposed by the United 
States, any State, territory, possession of the United States, or a 
political subdivision of any of the foregoing, or by any foreign 
country, are deductible from gross income for the taxable year in which 
paid or accrued, according to the method of accounting used in computing 
taxable income. For this purpose, postage is not a tax and automobile 
license or registration fees are ordinarily taxes.
    (c) Cross references. For the definition of the term ``real property 
taxes'', see paragraph (d) of Sec. 1.164-3. For the definition of the 
term ``foreign taxes'', see paragraph (d) of Sec. 1.164-3. For the 
definition of the term ``general sales taxes'', see paragraph (f) of 
Sec. 1.164-3. For the treatment of gasoline, diesel fuel, and other 
motor fuel taxes, see Sec. 1.164-5. For apportionment of taxes on real 
property between seller and purchaser, see section 164(d) and 
Sec. 1.164-6. For the general rule for taxable year of deduction, see 
section 461. For provisions disallowing any deduction for the tax paid 
at the source on interest from

[[Page 846]]

tax-free covenant bonds, see section 1451(f).

[T.D. 6780, 29 FR 18145, Dec. 22, 1964, as amended by T.D. 7577, 43 FR 
59357, Dec. 20, 1978]