
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC164]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
      PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
 
Sec. 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:
        (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) The GST tax imposed on income distributions.
        (5) The environmental tax imposed by section 59A.

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.

                          (3) Foreign taxes

        A foreign tax includes only a tax imposed by the authority of a 
    foreign country.

                    (4) Special rules for GST tax

        (A) In general

            The GST tax imposed on income distributions is--
                (i) the tax imposed by section 2601, and
                (ii) any State tax described in section 2604,

        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.

(c) Deduction denied in case of certain taxes

    No deduction shall be allowed for the following taxes:
        (1) Taxes assessed against local benefits of a kind tending to 
    increase the value of the property assessed; but this paragraph 
    shall not prevent the deduction of so much of such taxes as is 
    properly allocable to maintenance or interest charges.
        (2) Taxes on real property, to the extent that subsection (d) 
    requires such taxes to be treated as imposed on another taxpayer.

(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--
            (A) so much of the real property tax as is properly 
        allocable to that part of such year which ends on the day before 
        the date of the sale shall be treated as a tax imposed on the 
        seller, and
            (B) so much of such tax as is properly allocable to that 
        part of such year which begins on the date of the sale shall be 
        treated as a tax imposed on the purchaser.

                          (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--
                (i) is treated, under paragraph (1) of this subsection, 
            as imposed on the taxpayer, and
                (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--
        (1) the deduction allowed by subsection (a) shall be allowed to 
    the corporation; and
        (2) no deduction shall be allowed the shareholder for such tax.

(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.

     (2) Deduction treated as attributable to trade or business

        For purposes of this chapter, the deduction allowed by paragraph 
    (1) shall be treated as attributable to a trade or business carried 
    on by the taxpayer which does not consist of the performance of 
    services by the taxpayer as an employee.

(g) Cross references

            (1) For provisions disallowing any deduction for certain 
        taxes, see section 275.
            (2) For treatment of taxes imposed by Indian tribal 
        governments (or their subdivisions), see section 7871.

(Aug. 16, 1954, ch. 736, 68A Stat. 47; Pub. L. 85-866, title I, 
Sec. 6(a), Sept. 2, 1958, 72 Stat. 1608; Pub. L. 88-272, title II, 
Sec. 207(a), (b)(1), (2), Feb. 26, 1964, 78 Stat. 40-42; Pub. L. 92-580, 
Sec. 4(a), Oct. 27, 1972, 86 Stat. 1277; Pub. L. 94-455, title XIX, 
Secs. 1901(a)(25), 1951(b)(3)(A), Oct. 4, 1976, 90 Stat. 1767, 1837; 
Pub. L. 95-600, title I, Sec. 111(a), (b), Nov. 6, 1978, 92 Stat. 2777; 
Pub. L. 96-223, title I, Sec. 101(b), Apr. 2, 1980, 94 Stat. 250; Pub. 
L. 97-473, title II, Sec. 202(b)(3), Jan. 14, 1983, 96 Stat. 2609; Pub. 
L. 98-21, title I, Sec. 124(c)(1), Apr. 20, 1983, 97 Stat. 90; Pub. L. 
98-369, div. A, title IV, Sec. 474(r)(29)(F), July 18, 1984, 98 Stat. 
844; Pub. L. 99-499, title V, Sec. 516(b)(2)(A), Oct. 17, 1986, 100 
Stat. 1771; Pub. L. 99-514, title I, Sec. 134, title XIV, 
Sec. 1432(a)(1), (2), Oct. 22, 1986, 100 Stat. 2116, 2729; Pub. L. 100-
418, title I, Sec. 1941(b)(2)(A), Aug. 23, 1988, 102 Stat. 1323; Pub. L. 
100-647, title I, Sec. 1018(u)(11), Nov. 10, 1988, 102 Stat. 3590; Pub. 
L. 104-188, title I, Sec. 1704(t)(79), Aug. 20, 1996, 110 Stat. 1891.)


                               Amendments

    1996--Subsec. (a)(4), (5). Pub. L. 104-188 added pars. (4) and (5) 
and struck out former pars. (4) and (5) which read as follows:
    ``(4) The environmental tax imposed by section 59A.
    ``(5) The GST tax imposed on income distributions.''
    1988--Subsec. (a)(4). Pub. L. 100-418 struck out par. (4) relating 
to windfall profit tax imposed by section 4986 and redesignated par. (5) 
relating to environmental tax as (4).
    Subsec. (a)(5). Pub. L. 100-647 substituted ``The GST'' for ``the 
GST''.
    Pub. L. 100-418 redesignated par. (5), relating to environmental 
tax, as (4).
    1986--Subsec. (a). Pub. L. 99-514, Sec. 134(a)(2), inserted 
``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.''
    Subsec. (a)(4). Pub. L. 99-514, Sec. 134(a)(1), struck out par. (4) 
relating to ``State and local general sales taxes'' and redesignated as 
par. (4) former par. (5) relating to windfall profit tax.
    Subsec. (a)(5). Pub. L. 99-514, Sec. 1432(a)(1), added par. (5) 
relating to GST tax imposed on income distributions.
    Pub. L. 99-499 added par. (5) relating to environmental tax.
    Subsec. (b)(2). Pub. L. 99-514, Sec. 134(b)(1), (2), redesignated 
par. (3) as (2) and struck out former par. (2), general sales taxes 
provisions, subpars. (A) to (E) of which covered in general rule, 
special rules for food, etc., items taxed at different rates, 
compensating use taxes, and special rules for motor vehicles, 
respectively.
    Subsec. (b)(3). Pub. L. 99-514, Sec. 134(b)(2), redesignated par. 
(4) as (3). Former par. (3) redesignated (2).
    Subsec. (b)(4). Pub. L. 99-514, Sec. 1432(a)(2), added par. (4).
    Pub. L. 99-514, Sec. 134(b)(2), redesignated par. (4) as (3).
    Subsec. (b)(5). Pub. L. 99-514, Sec. 134(b)(1), struck out par. (5), 
separately stated general sales taxes, which read as follows: ``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 (otherwise than 
in connection with the consumer's trade or business) to his seller, such 
amount shall be treated as a tax imposed on, and paid by, such 
consumer.''
    1984--Subsec. (f). Pub. L. 98-369 redesignated pars. (2) and (3) as 
pars. (1) and (2), respectively. Former par. (1), which referred to 
section 1451 for provisions disallowing any deduction for the payment of 
the tax imposed by subchapter B of chapter 3 (relating to tax-free 
covenant bonds), was struck out.
    1983--Subsec. (f). Pub. L. 98-21 added subsec. (f). Former subsec. 
(f) redesignated (g).
    Subsec. (f)(3). Pub. L. 97-473 added par. (3).
    Subsec. (g). Pub. L. 98-21 redesignated subsec. (f) as (g).
    1980--Subsec. (a)(5). Pub. L. 96-223 added par. (5).
    1978--Subsec. (a)(5). Pub. L. 95-600, Sec. 111(a), struck out par. 
(5) relating to a deduction for State and local taxes on the sale of 
gasoline, diesel fuel, and other motor fuels.
    Subsec. (b)(5). Pub. L. 95-600, Sec. 111(b), struck out in heading 
``and gasoline taxes'' after ``sales taxes'', and in text ``or of any 
tax on the sale of gasoline, diesel fuel, or other motor fuel'' after 
``sales tax''.
    1976--Subsec. (d)(2). Pub. L. 94-455, Sec. 1901(a)(25), redesignated 
subpar. (D) as (B), and struck out subpar. (B) which related to the 
taxable years that subsec. (d)(1) applied and subpar. (C) which related 
to the limitations on subsec. (d)(1) where real property tax was 
allowable as a deduction under the Internal Revenue Code of 1939.
    Subsecs. (f), (g). Pub. L. 94-455, Sec. 1951(b)(3)(A), redesignated 
subsec. (g) as (f). Former subsec. (f), which related to payments for 
municipal services in atomic energy communities, was struck out.
    1972--Subsec. (b)(2)(E). Pub. L. 92-580 added subpar. (E).
    1964--Subsec. (a). Pub. L. 88-272, Sec. 207(a), limited the 
subsection to State, local and foreign real property, income, war 
profits, excess profits, and unspecified taxes, on a business or 
activity described in section 212, and to State and local personal 
property, general sales, gasoline, diesel fuel and other motor fuel 
taxes.
    Subsec. (b). Pub. L. 88-272, Sec. 207(a), added subsec. (b). Former 
subsec. (b), which denied the deduction for certain Federal income 
taxes, for Federal war profits and excess profits taxes, import duties, 
excise and stamp taxes, and estate, inheritance, legacy, succession and 
gift taxes, local assessments against benefits increasing property 
values, and certain taxes imposed by any foreign country or possession 
of the United States if the taxpayer chose to benefit by section 901 
relating to foreign tax credit, and for taxes on real property to the 
extent that they are treated as imposed on another taxpayer, was struck 
out.
    Subsec. (c). Pub. L. 88-272, Sec. 207(a), substituted provisions 
denying the deduction for taxes assessed against local benefits which 
increase property value, except for so much as is properly allocable to 
maintenance or interest charges, and for real property taxes to the 
extent they are treated as imposed on another taxpayer, for provisions 
relating to certain retail sales taxes and gasoline taxes, the extent to 
which they were deductible, and to definition of ``state or local sales 
tax''.
    Subsec. (f). Pub. L. 88-272, Sec. 207(b)(1), inserted ``State'' 
before ``real property taxes''.
    Subsec. (g). Pub. L. 88-272, Sec. 207(b)(2), designated existing 
provisions as par. (1), substituted ``1451'' for ``1451(f)'' and added 
par. (2).
    1958--Subsecs. (f), (g). Pub. L. 85-866, Sec. 6(a), added subsec. 
(f) and redesignated former subsec. (f) as (g).


                    Effective Date of 1988 Amendments

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.
    Section 1941(c) of Pub. L. 100-418 provided that: ``The amendments 
made by this section [amending this section and sections 193, 291, 6161, 
6211, 6212, 6213, 6214, 6302, 6344, 6501, 6511, 6512, 6611, 6654, 6655, 
6724, 6862, 7422, and 7512 of this title, and repealing sections 280D, 
4986 to 4998, 6050C, 6076, 6232, 6429, 6430, and 7241 of this title] 
shall apply to crude oil removed from the premises on or after the date 
of the enactment of this Act [Aug. 23, 1988].''


                    Effective Date of 1986 Amendments

    Amendment by section 134 of Pub. L. 99-514 applicable to taxable 
years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99-
514, set out as a note under section 1 of this title.
    Amendment by section 1432(a)(1), (2) of Pub. L. 99-514 applicable to 
generation-skipping transfers (within the meaning of section 2611 of 
this title) made after Oct. 22, 1986, except as otherwise provided, see 
section 1433 of Pub. L. 99-514, set out as an Effective Date note under 
section 2601 of this title.
    Amendment by Pub. L. 99-499 applicable to taxable years beginning 
after Dec. 31, 1986, see section 516(c) of Pub. L. 99-499, set out as a 
note under section 26 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 not applicable with respect to 
obligations issued before Jan. 1, 1984, see section 475(b) of Pub. L. 
98-369, set out as a note under section 33 of this title.


                    Effective Date of 1983 Amendments

    Amendment by Pub. L. 98-21 applicable to taxable years beginning 
after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set out as 
a note under section 1401 of this title.
    For effective date of amendment by Pub. L. 97-473, see section 
204(1) of Pub. L. 97-473, set out as an Effective Date note under 
section 7871 of this title.


                    Effective Date of 1980 Amendment

    Amendment by Pub. L. 96-223 applicable to periods after Feb. 29, 
1980, see section 101(i) of Pub. L. 96-223, set out as an Effective Date 
note under section 6161 of this title.


                    Effective Date of 1978 Amendment

    Section 111(c) of Pub. L. 95-600 provided that: ``The amendments 
made by this section [amending this section] shall apply to taxable 
years beginning after December 31, 1978.''


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 applicable with respect to taxable years 
beginning after Dec. 31, 1976, see sections 1901(d) and 1951(d) of Pub. 
L. 94-455, set out as notes under sections 2 and 72 of this title, 
respectively.


                    Effective Date of 1972 Amendment

    Section 4(b) of Pub. L. 92-580 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
ending on or after January 1, 1971.''


                    Effective Date of 1964 Amendment

    Section 207(c) of Pub. L. 88-272, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) General rule.--Except as provided in paragraph (2), the 
amendments made by this section [enacting section 275 of this title and 
amending this section and sections 535, 545, 556, 901, and 903 of this 
title] shall apply to taxable years beginning after December 31, 1963.
    ``(2) Special taxing districts.--Section 164(c)(1) of the Internal 
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection 
(a)) shall not prevent the deduction under section 164 of such Code (as 
so amended) of taxes levied by a special taxing district which is 
described in section 164(b)(5) of such Code (as in effect for a taxable 
year ending on December 31, 1963) and which was in existence on December 
31, 1963, for the purpose of retiring indebtedness existing on such 
date.''


                    Effective Date of 1958 Amendment

    Section 6(b) of Pub. L. 85-866 provided that: ``The amendments made 
by subsection (a) [amending this section] shall apply with respect to 
taxable years beginning after December 31, 1957.''


                            Savings Provision

    Section 1951(b)(3)(B) of Pub. L. 94-455 provided that: 
``Notwithstanding subparagraph (A) [amending this section], any amount 
paid or accrued in a taxable year beginning after December 31, 1976, to 
the Atomic Energy Commission or its successors for municipal-type 
services shall be allowed as a deduction under section 164 if such 
amount would have been deductible by reason of section 164(f) (as in 
effect for a taxable year ending on December 31, 1976) and if the amount 
is paid or accrued with respect to real property in a community (within 
the meaning of section 21(b) of the Atomic Energy Community Act of 1955 
(42 U.S.C. 2304(b))) in which the Commission on December 31, 1976, was 
rendering municipal-type services for which it received compensation 
from the owners of property within such community.''

                  Section Referred to in Other Sections

    This section is referred to in sections 32, 56, 59A, 67, 195, 216, 
275, 542, 556, 691, 703, 832, 834, 853, 901, 903, 905, 911, 960, 1001, 
1012, 6045, 7871 of this title; title 31 section 6704.
