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I moved back to California in 2010 after several years away, and I've forgotten or am mis-remembering some things.

Can I deduct the amount that I paid in state income tax in 2011 from my Federal income taxes? I am itemizing deductions because I have mortgage interest to deduct.

For example, if my paychecks had $10K taken out throughout 2011 for CA state income tax, can I deduct that $10K from Federal on my itemized deductions? For some reason, I don't remember doing this deduction from the last time I lived in CA back in 2007. I moved to Washington, where there is no state income tax, so this never came up.

The IRS website says "You can deduct state and local income taxes." I am using Taxactonline.com, and it also says that I can.

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  • Yes, You can on your itemized deductions
    – f1StudentInUS
    Commented Apr 8, 2012 at 5:53
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    You should not be itemizing deductions just because you have mortgage interest to deduct; itemize if the total on Schedule A - medical expenses exceeding 7.5% of income plus state income/sales tax plus property tax plus charitable deductions etc - exceeds the standard deduction to which you are entitled. Most tax preparation programs will work out numbers both ways, so see which is more beneficial. Of course, if you have to itemize deductions because you are filing MFS and your spouse is itemizing deductions, that is a different matter.
    – Dilip Sarwate
    Commented Apr 8, 2012 at 11:58
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    You are right. However, in practice if you are paying mortgage interest, that amount by itself will almost certainly exceed the standard deduction, particularly in California.
    – stackoverflowuser2010
    Commented Apr 8, 2012 at 18:55
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    If you are itemizing and taking mortgage interest, don't forget property tax.
    – JTP - Apologise to Monica ♦
    Commented Nov 27, 2012 at 2:00

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Yes, the amount of state income tax withheld from your paychecks (as indicated on your W-2) is exactly what the "state and local income taxes" (line 5a on 1040 Schedule A) deduction is for. You get a choice between deducting either this income tax, or sales tax.

Note that if you deduct state income tax, any state income tax refund you receive this year may need to be added as taxable income when you file your taxes next year. (On the other hand, if you owe state income tax, that can also be deducted next year.)

P.S. don't forget to include California's SDI payroll tax in the "state and local income taxes" deduction

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  • You can also include any state income tax paid for previous years (2010 and before) during 2011.
    – Dilip Sarwate
    Commented Apr 8, 2012 at 12:00

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