---
kind: "range"
citation: "26 C.F.R. §§ 1.164-2–1.164-8"
title: "26"
from: "1.164-2"
to: "1.164-8"
count: 7
url: "https://uscodex.org/cfr/26/1.164-2..1.164-8"
---

# §1.164-2. Deduction denied in case of certain taxes.


This section and [§ 1.275](/cfr/26/1.275.md) describe certain taxes for which no deduction is allowed. In the case of taxable years beginning before January 1, 1964, the denial is provided for by [section 164(b)](/cfr/26/164.md?p=b) (prior to being amended by section 207 of the Revenue Act of 1964 (78 Stat. 40)). In the case of taxable years beginning after December 31, 1963, the denial is governed by sections [164](/cfr/26/164.md) and [275](/cfr/26/275.md). No deduction is allowed for the following taxes:

- (a) **Federal income taxes.** Federal income taxes, including the taxes imposed by [section 3101](/cfr/26/3101.md), relating to the tax on employees under the Federal Insurance Contributions Act (chapter 21 of the Code); sections [3201](/cfr/26/3201.md) and [3211](/cfr/26/3211.md), relating to the taxes on railroad employees and railroad employee representatives; [section 3402](/cfr/26/3402.md), relating to the tax withheld at source on wages; and by corresponding provisions of prior internal revenue laws.
- (b) **Federal war profits and excess profits taxes.** Federal war profits and excess profits taxes including those imposed by title II of the Revenue Act of 1917 (39 Stat. 1000), title III of the Revenue Act of 1918 (40 Stat. 1088), title III of the Revenue Act of 1921 (42 Stat. 271), section 216 of the National Industrial Recovery Act (48 Stat. 208), section 702 of the Revenue Act of 1934 (48 Stat. 770), Subchapter D, Chapter 1 of the Internal Revenue Code of 1939, and Subchapter E, Chapter 2 of the Internal Revenue Code of 1939.
- (c) **Estate and gift taxes.** Estate, inheritance, legacy, succession, and gift taxes.
- (d) **Foreign income taxes.** Except as provided in § [1.901-1(c)(2)](/cfr/26/1.901-1.md?p=c-2) and [(3)](/cfr/26/1.901-1.md?p=c-3), foreign income taxes, as defined in [§ 1.901-2(a)](/cfr/26/1.901-2.md?p=a), paid or accrued (as the case may be, depending on the taxpayer's method of accounting for such taxes) in a taxable year, if the taxpayer chooses to take to any extent the benefits of [section 901](/cfr/26/901.md), relating to the credit for taxes of foreign countries and possessions of the United States, for taxes that are paid or accrued (according to the taxpayer's method of accounting for such taxes) in such taxable year.
- (e) **Real property taxes.** Taxes on real property, to the extent that [section 164(d)](/cfr/26/164.md?p=d) and [§ 1.164-6](/cfr/26/1.164-6.md) require such taxes to be treated as imposed on another taxpayer.
- (f) **Federal duties and excise taxes.** Federal import or tariff duties, business, license, privilege, excise, and stamp taxes (not described in paragraphs [(a)](#a), [(b)](#b), [(c)](#c), or [(h)](#h) of this section, or [§ 1.164-4](/cfr/26/1.164-4.md)) paid or accrued within the taxable year. The fact that any such tax is not deductible as a tax under [section 164](/cfr/26/164.md) does not prevent (1) its deduction under [section 162](/cfr/26/162.md) or [section 212](/cfr/26/212.md), provided it represents an ordinary and necessary expense paid or incurred during the taxable year by a corporation or an individual in the conduct of any trade or business or, in the case of an individual for the production or collection of income, for the management, conservation, or maintenance of property held for the production of income, or in connection with the determination, collection, or refund of any tax, or (2) its being taken into account during the taxable year by a corporation or an individual as a part of the cost of acquiring or producing property in the trade or business or, in the case of an individual, as a part of the cost of property held for the production of income with respect to which it relates.
- (g) **Taxes for local benefits.** Except as provided in [§ 1.164-4](/cfr/26/1.164-4.md), taxes assessed against local benefits of a kind tending to increase the value of the property assessed.
- (h) **Excise tax on real estate investment trusts.** The excise tax imposed on certain real estate investment trusts by [section 4981](/cfr/26/4981.md).
- (i) **Applicability dates.** [Paragraph (d)](#d) of this section applies to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021.

# §1.164-3. Definitions and special rules.


For purposes of [section 164](/cfr/26/164.md) and [§ 1.164-1](/cfr/26/1.164-1.md) to [§ 1.164-8](/cfr/26/1.164-8.md), inclusive—

- (a) **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.
- (b) **Real property taxes.** The term “real property taxes” means taxes imposed on interests in real property and levied for the general public welfare, but it does not include taxes assessed against local benefits. See [§ 1.164-4](/cfr/26/1.164-4.md).
- (c) **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. To qualify as a personal property tax, a tax must meet the following three tests:
  - (1) The tax must be ad valorem—that is, substantially in proportion to the value of the personal property. A tax which is based on criteria other than value does not qualify as ad valorem. For example, a motor vehicle tax based on weight, model year, and horsepower, or any of these characteristics is not an ad valorem tax. However, a tax which is partly based on value and partly based on other criteria may qualify in part. For example, in the case of a motor vehicle tax of 1 percent of value plus 40 cents per hundredweight, the part of the tax equal to 1 percent of value qualifies as an ad valorem tax and the balance does not qualify.
  - (2) The tax must be imposed on an annual basis, even if collected more frequently or less frequently.
  - (3) The tax must be imposed in respect of personal property. A tax may be considered to be imposed in respect of personal property even if in form it is imposed on the exercise of a privilege. Thus, for taxable years beginning after December 31, 1963, State and local taxes on the registration or licensing of highway motor vehicles are not deductible as personal property taxes unless and to the extent that the tests prescribed in this subparagraph are met. For example, an annual ad valorem tax qualifies as a personal property tax although it is denominated a registration fee imposed for the privilege of registering motor vehicles or of using them on the highways.
- (d) **Foreign taxes.** The term “foreign tax” includes only a tax imposed by the authority of a foreign country. A tax-imposed by a political subdivision of a foreign country is considered to be imposed by the authority of that foreign country.
- (e) **Sales tax.**
  - (1) The term “sales tax” means a tax imposed upon persons engaged in selling tangible personal property, or upon the consumers of such property, including persons selling gasoline or other motor vehicle fuels at wholesale or retail, which is a stated sum per unit of property sold or which is measured by the gross sales price or the gross receipts from the sale. The term also includes a tax imposed upon persons engaged in furnishing services which is measured by the gross receipts for furnishing such services.
  - (2) In general, the term “consumer” means the ultimate user or purchaser; it does not include a purchaser such as a retailer, who acquires the property for resale.
- (f) **General sales tax.** A “general sales tax” is a sales tax which is imposed at one rate in respect of the sale at retail of a broad range of classes of items. No foreign sales tax is deductible under [section 164(a)](/cfr/26/164.md?p=a) and [paragraph (a)(4)](/cfr/26/1.164-1.md?p=a-4) of § 1.164-1. To qualify as a general sales tax, a tax must meet the following two tests:
  - (1) The tax must be a tax in respect of sales at retail. This may include a tax imposed on persons engaged in selling property at retail or furnishing services at retail, for example, if the tax is measured by gross sales price or by gross receipts from sales or services. Rentals qualify as sales at retail if so treated under applicable State sales tax laws.
  - (2) The tax must be general—that is, it must be imposed at one rate in respect of the retail sales of a broad range of classes of items. A sales tax is considered to be general although imposed on sales of various classes of items at more than one rate provided that one rate applies to the retail sales of a broad range of classes of items. The term “items” includes both commodities and services.
- (g) **Special rules relating to general sales taxes.**
  - (1) A sales tax which is general is usually imposed at one rate in respect of the retail sales of all tangible personal property (with exceptions and additions). However, a sales tax which is selective—that is, a tax which applies at one rate with respect to retail sales of specified classes of items also qualifies as general if the specified classes represent a broad range of classes of items. A selective sales tax which does not apply at one rate to the retail sales of a broad range of classes of items is not general. For example, a tax which applies only to sales of alcoholic beverages, tobacco, admissions, luxury items, and a few other items is not general. Similarly, a tax imposed solely on services is not general. However, a selective sales tax may be deemed to be part of the general sales tax and hence may be deductible, even if imposed by a separate title, etc., of the State or local law, if imposed at the same rate as the general rate of tax (as defined in [subparagraph (4)](#g-4) of this paragraph) which qualifies a tax in the taxing jurisdiction as a general sales tax. For example, if a State has a 5 percent general sales tax and a separate selective sales tax of 5 percent on transient accommodations, the tax on transient accommodations is deductible.
  - (2) A tax is imposed at one rate only if it is imposed at that rate on generally the same base for all items subject to tax. For example, a sales tax imposed at a 3 percent rate on 100 percent of the sales price of some classes of items and at a 3 percent rate on 50 percent of the sales price of other classes of items would not be imposed at one rate with respect to all such classes. However, a tax is considered to be imposed at one rate although it allows dollar exemptions, if the exemptions are designed to exclude all sales under a certain dollar amount. For example, a tax may be imposed at one rate although it applies to all sales of tangible personal property but applies only to sales amounting to more than 10 cents.
  - (3) The fact that a sales tax exempts food, clothing, medical supplies, and motor vehicles, or any of them, shall not be taken into account in determining whether the tax applies to a broad range of classes of items. The fact that a sales tax applies to food, clothing, medical supplies, and motor vehicles, or any of them, at a rate which is lower than the general rate of tax (as defined in [subparagraph (4)](#g-4) of this paragraph) is not taken into account in determining whether the tax is imposed at one rate on the retail sales of a broad range of classes of items. For purposes of this section, the term “food” means food for human consumption off the premises where sold, and the term “medical supplies” includes drugs, medicines, and medical devices.
  - (4) Except in the case of a lower rate of tax applicable in respect of food, clothing, medical supplies, and motor vehicles, or any of them, no deduction is allowed for a general sales tax in respect of any item if the tax is imposed on such item at a rate other than the general rate of tax. The general rate of tax is the one rate which qualifies a tax in a taxing jurisdiction as a general sales tax because the tax is imposed at such one rate on a broad range of classes of items. There can be only one general rate of tax in any one taxing jurisdiction. However, a general sales tax imposed at a lower rate or rates on food, clothing, motor vehicles, and medical supplies, or any of them, may nonetheless be deductible with respect to such items. For example, a sales tax which is imposed at 1 percent with respect to food, imposed at 3 percent with respect to a broad range of classes of tangible personal property, and imposed at 4 percent with respect to transient accommodations would qualify as a general sales tax. Taxes paid at the 1 percent and the 3 percent rates are deductible, but tax paid at the 4 percent rate is not deductible. The fact that a sales tax provides for the adjustment of the general rate of tax to reflect the sales tax rate in another taxing jurisdiction shall not be taken into account in determining whether the tax is imposed at one rate on the retail sales of a broad range of classes of items. Moreover, a general sales tax imposed at a lower rate with respect to an item in order to reflect the tax rate in another jurisdiction is also deductible at such lower rate. For example, State E imposes a general sales tax whose general rate is 3 percent. The State E sales tax law provides that in areas bordering on States with general sales taxes, selective sales taxes, or special excise taxes, the rate applied in the adjoining State will be used if such rate is under 3 percent. State F imposes a 2 percent sales tax. The 2 percent sales tax paid by residents of State E in areas bordering on State F is deductible.
- (h) **Compensating use taxes.** A compensating use tax in respect of any item is treated as a general sales tax. The term “compensating use tax” means, in respect of any item, a tax which is imposed on the use, storage, or consumption of such item and which is complementary to a general sales tax which is deductible with respect to sales of similar items.
- (i) **Special rules relating to compensating use taxes.**
  - (1) In general, a use tax on an item is complementary to a general sales tax on similar items if the use tax is imposed on an item which was not subject to such general sales tax but which would have been subject to such general sales tax if the sale of the item had taken place within the jurisdiction imposing the use tax. For example, a tax imposed by State A on the use of a motor vehicle purchased in State B is complementary to the general sales tax of State A on similar items, if the latter tax applies to motor vehicles sold in State A.
  - (2) Since a compensating use tax is treated as a general sales tax, it is subject to the rule of subparagraph (C) of section 164(b)(2) and [paragraph (g)(4)](#g-4) of this section that no deduction is allowed for a general sales tax imposed in respect of an item at a rate other than the general rate of tax (except in the case of lower rates on the sale of food, clothing, medical supplies, and motor vehicles). The fact that a compensating use tax in respect of any item provides for an adjustment in the rate of the compensating use tax or the amount of such tax to be paid on account of a sales tax on such item imposed by another taxing jurisdiction is not taken into account in determining whether the compensating use tax is imposed in respect of the item at a rate other than the general rate of tax. For example, a compensating use tax imposed by State C on the use of an item purchased in State D is considered to be imposed at the general rate of tax even though the tax imposed by State C allows a credit for any sales tax paid on such item in State D, or the rate of such compensating use tax is adjusted to reflect the rate of sales tax imposed by State D.
- (j) **Safe harbor for payments made by individuals in exchange for State or local tax credits—**
  - (1) **In general.** An individual who itemizes deductions and who makes a payment to or for the use of an entity described in [section 170(c)](/cfr/26/170.md?p=c) in consideration for a State or local tax credit may treat as a payment of State or local tax for purposes of [section 164](/cfr/26/164.md) the portion of such payment for which a charitable contribution deduction under [section 170](/cfr/26/170.md) is disallowed under [§ 1.170A-1(h)(3)](/cfr/26/1.170A-1.md?p=h-3). This treatment as payment of a State or local tax is allowed in the taxable year in which the payment is made to the extent that the resulting credit is applied, consistent with applicable State or local law, to offset the individual's State or local tax liability for such taxable year or the preceding taxable year.
  - (2) **Credits carried forward.** To the extent that a State or local tax credit described in [paragraph (j)(1)](#j-1) of this section is not applied to offset the individual's applicable State or local tax liability for the taxable year of the payment or the preceding taxable year, any excess State or local tax credit permitted to be carried forward may be treated as a payment of State or local tax under [section 164(a)](/cfr/26/164.md?p=a) in the taxable year or years for which the carryover credit is applied in accordance with State or local law.
  - (3) **Limitation on individual deductions.** Nothing in this [paragraph (j)](#j) may be construed as permitting a taxpayer who applies this safe harbor to avoid the limitation of [section 164(b)(6)](/cfr/26/164.md?p=b-6) for any amount paid as a tax or treated under this [paragraph (j)](#j) as a payment of tax.
  - (4) **No safe harbor for transfers of property.** The safe harbor provided in this [paragraph (j)](#j) applies only to a payment of cash or cash equivalent.
  - (5) **Coordination with other deductions.** An individual who deducts a payment under [section 164](/cfr/26/164.md) may not also deduct the same payment under any other Code section.
  - (6) **Examples.** In the following examples, the taxpayer is an individual who itemizes deductions for Federal income tax purposes.
    - (i) **Example 1.** In year 1, Taxpayer A makes a payment of $500 to an entity described in [section 170(c)](/cfr/26/170.md?p=c). In return for the payment, A receives a dollar-for-dollar State income tax credit. Prior to application of the credit, A's State income tax liability for year 1 was more than $500. A applies the $500 credit to A's year 1 State income tax liability. Under [paragraph (j)(1)](#j-1) of this section, A treats the $500 payment as a payment of State income tax in year 1. To determine A's deduction amount, A must apply the provisions of [section 164](/cfr/26/164.md) applicable to payments of State and local taxes, including the limitation in [section 164(b)(6)](/cfr/26/164.md?p=b-6). See [paragraph (j)(3)](#j-3) of this section.
    - (ii) **Example 2.** In year 1, Taxpayer B makes a payment of $7,000 to an entity described in [section 170(c)](/cfr/26/170.md?p=c). In return for the payment, B receives a dollar-for-dollar State income tax credit, which under State law may be carried forward for three taxable years. Prior to application of the credit, B's State income tax liability for year 1 was $5,000; B applies $5,000 of the $7,000 credit to B's year 1 State income tax liability. Under [paragraph (j)(1)](#j-1) of this section, B treats $5,000 of the $7,000 payment as a payment of State income tax in year 1. Prior to application of the remaining credit, B's State income tax liability for year 2 exceeds $2,000. B applies the excess credit of $2,000 to B's year 2 State income tax liability. For year 2, under [paragraph (j)(2)](#j-2) of this section, B treats the $2,000 as a payment of State income tax under [section 164](/cfr/26/164.md). To determine B's deduction amounts in years 1 and 2, B must apply the provisions of [section 164](/cfr/26/164.md) applicable to payments of State and local taxes, including the limitation under [section 164(b)(6)](/cfr/26/164.md?p=b-6). See [paragraph (j)(3)](#j-3) of this section.
    - (iii) **Example 3.** In year 1, Taxpayer C makes a payment of $7,000 to an entity described in [section 170(c)](/cfr/26/170.md?p=c). In return for the payment, C receives a local real property tax credit equal to 25 percent of the amount of this payment ($1,750). Prior to application of the credit, C's local real property tax liability in year 1 was more than $1,750. C applies the $1,750 credit to C's year 1 local real property tax liability. Under [paragraph (j)(1)](#j-1) of this section, for year 1, C treats $1,750 of the $7,000 payment as a payment of local real property tax for purposes of [section 164](/cfr/26/164.md). To determine C's deduction amount, C must apply the provisions of [section 164](/cfr/26/164.md) applicable to payments of State and local taxes, including the limitation under [section 164(b)(6)](/cfr/26/164.md?p=b-6). See [paragraph (j)(3)](#j-3) of this section.
  - (7) **Applicability date.** This [paragraph (j)](#j) applies to payments made to [section 170(c)](/cfr/26/170.md?p=c) entities on or after June 11, 2019. However, a taxpayer may choose to apply this [paragraph (j)](#j) to payments made to [section 170(c)](/cfr/26/170.md?p=c) entities after August 27, 2018.

# §1.164-4. Taxes for local benefits.

- (a) So-called taxes for local benefits referred to in [paragraph (g)](/cfr/26/1.164-2.md?p=g) of § 1.164-2, more properly assessments, paid for local benefits such as street, sidewalk, and other like improvements, imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied are not deductible as taxes. A tax is considered assessed against local benefits when the property subject to the tax is limited to property benefited. Special assessments are not deductible, even though an incidental benefit may inure to the public welfare. The real property taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction. Assessments under the statutes of California relating to irrigation, and of Iowa relating to drainage, and under certain statutes of Tennessee relating to levees, are limited to property benefited, and if the assessments are so limited, the amounts paid thereunder are not deductible as taxes. For treatment of assessments for local benefits as adjustments to the basis of property, see [section 1016(a)(1)](/cfr/26/1016.md?p=a-1) and the regulations thereunder.
- (b)
  - (1) Insofar as assessments against local benefits are made for the purpose of maintenance or repair or for the purpose of meeting interest charges with respect to such benefits, they are deductible. In such cases, the burden is on the taxpayer to show the allocation of the amounts assessed to the different purposes. If the allocation cannot be made, none of the amount so paid is deductible.
  - (2) Taxes levied by a special taxing district which was in existence on December 31, 1963, for the purpose of retiring indebtedness existing on such date, are deductible, to the extent levied for such purpose, if (i) the district covers the whole of at least one county, (ii) if at least 1,000 persons are subject to the taxes levied by the district, and (iii) if the district levies its assessments annually at a uniform rate on the same assessed value of real property, including improvements, as is used for purposes of the real property tax generally.

# §1.164-5. Certain retail sales taxes and gasoline taxes.


For taxable years beginning before January 1, 1964, any amount representing a State or local sales tax paid by a consumer of services or tangible personal property is deductible by such consumer as a tax, provided it is separately stated and not paid in connection with his trade or business. For taxable years beginning after December 31, 1963, only the amount of any separately stated State and local general sales tax (as defined in [paragraph (g)](/cfr/26/1.164-3.md?p=g) of § 1.164-3) and tax on the sale of gasoline, diesel fuel or other motor fuel paid by the consumer (other than in connection with his trade or business) is deductible by the consumer as tax. The fact that, under the law imposing it, the incidence of such State or local tax does not fall on the consumer is immaterial. The requirement that the amount of tax must be separately stated will be deemed complied with where it clearly appears that at the time of sale to the consumer, the tax was added to the sales price and collected or charged as a separate item. It is not necessary, for the purpose of this section, that the consumer be furnished with a sales slip, bill, invoice, or other statement on which the tax is separately stated. For example, where the law imposing the State or local tax for which the taxpayer seeks a deduction contains a prohibition against the seller absorbing the tax, or a provision requiring a posted notice stating that the tax will be added to the quoted price, or a requirement that the tax be separately shown in advertisements or separately stated on all bills and invoices, it is presumed that the amount of the State or local tax was separately stated at the time paid by the consumer; except that such presumption shall have no application to a tax on the sale of gasoline, diesel fuel or other motor fuel imposed upon a wholesaler unless such provisions of law apply with respect to both the sale at wholesale and the sale at retail.


# §1.164-6. Apportionment of taxes on real property between seller and purchaser.

- (a) **Scope.** Except as provided otherwise in [section 164(f)](/cfr/26/164.md?p=f) and [§ 1.164-8](/cfr/26/1.164-8.md), when real property is sold, [section 164(d)(1)](/cfr/26/164.md?p=d-1) governs the deduction by the seller and the purchaser of current real property taxes. [Section 164(d)(1)](/cfr/26/164.md?p=d-1) performs two functions: (1) It provides a method by which a portion of the taxes for the real property tax year in which the property is sold may be deducted by the seller and a portion by the purchaser; and (2) it limits the deduction of the seller and the purchaser to the portion of the taxes corresponding to the part of the real property tax year during which each was the owner of the property. These functions are accomplished by treating a portion of the taxes for the real property tax year in which the property is sold as imposed on the seller and a portion as imposed on the purchaser. To the extent that the taxes are treated as imposed on the seller and the purchaser, each shall be allowed a deduction, under [section 164(a)](/cfr/26/164.md?p=a), in the taxable year such tax is paid or accrued, or treated as paid or accrued under [section 164(d)(2)](/cfr/26/164.md?p=d-2) (A) or (D) and this section. No deduction is allowed for taxes on real property to the extent that they are imposed on another taxpayer, or are treated as imposed on another taxpayer under [section 164(d)](/cfr/26/164.md?p=d). For the election to accrue real property taxes ratably see [section 461(c)](/cfr/26/461.md?p=c) and the regulations thereunder.
- (b) **Application of rule of apportionment.**
  - (1)
    - (i) For purposes of the deduction provided by [section 164(a)](/cfr/26/164.md?p=a), if real property is sold during any real property tax year, the portion of the real property tax properly allocable to that part of the real property tax year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and the portion of such tax properly allocable to that part of such real property tax year which begins on the date of the sale shall be treated as a tax imposed on the purchased. For definition of “real property tax year” see [paragraph (c)](#c) of this section. This rule shall apply whether or not the seller and the purchaser apportion such tax. The rule of apportionment contained in [section 164(d)(1)](/cfr/26/164.md?p=d-1) applies even though the same real property is sold more than once during the real property tax year. (See [paragraph (d)(5)](#d-5) of this section for rule requiring inclusion in gross income of excess deductions.)
    - (ii) Where the real property tax becomes a personal liability or a lien before the beginning of the real property tax year to which it relates and the real property is sold subsequent to the time the tax becomes a personal liability or a lien but prior to the beginning of the related real property tax year—

      (a) The seller may not deduct any amount for real property taxes for the related real property tax year, and

      (b) To the extent that he holds the property for such real property tax year, the purchaser may deduct the amount of such taxes for the taxable year they are paid (or amounts representing such taxes are paid to the seller, mortgagee, trustee or other person having an interest in the property as security) or accrued by him according to his method of accounting.

    - (iii) Similarly, where the real property tax becomes a personal liability or a lien after the end of the real property tax year to which it relates and the real property is sold prior to the time the tax becomes a personal liability or a lien but after the end of the related real property tax year—

      (a) The purchaser may not deduct any amount for real property taxes for the related real property tax year, and

      (b) To the extent that he holds the property for such real property tax year, the seller may deduct the amount of such taxes for the taxable year they are paid (or amounts representing such taxes are paid to the purchaser, mortgagee, trustee, or other person having an interest in the property as security) or accrued by him according to his method of accounting.

    - (iv) Where the real property is sold (or purchased) during the related real property tax year the real property taxes for such year are apportioned between the parties to such sale and may be deducted by such parties in accordance with the provisions of [paragraph (d)](#d) of this section.
  - (2) [Section 164(d)](/cfr/26/164.md?p=d) does not apply to delinquent real property taxes for any real property tax year prior to the real property tax year in which the property is sold.
  - (3) The provisions of this paragraph may be illustrated by the following examples:
- (c) **Real property tax year.** As used in [section 164(d)](/cfr/26/164.md?p=d), the term “real property tax year” refers to the period which, under the law imposing the tax, is regarded as the period to which the tax imposed relates. Where the State and one or more local governmental units each imposes a tax on real property, the real property tax year for each tax must be determined for purposes of applying the rule of apportionment of [section 164(d)(1)](/cfr/26/164.md?p=d-1) to each tax. The time when the tax rate is determined, the time when the assessment is made, the time when the tax becomes a lien, or the time when the tax becomes due or delinquent does not necessarily determine the real property tax year. The real property tax year may or may not correspond to the fiscal year of the governmental unit imposing the tax. In each case the State or local law determines what constitutes the real property tax year. Although the seller and the purchaser may or may not make an allocation of real property taxes, the meaning of “real property tax year” in [section 164(d)](/cfr/26/164.md?p=d) and the application of [section 164(d)](/cfr/26/164.md?p=d) do not depend upon what real property taxes were allocated nor the method of allocation used by the parties.
- (d) **Special rules—**
  - (1) **Seller using cash receipts and disbursements method of accounting.** Under the provisions of [section 164(d)](/cfr/26/164.md?p=d), if the seller by reason of his method of accounting may not deduct any amount for taxes unless paid, and—
    - (i) The purchaser (under the law imposing the real property tax) is liable for the real property tax for the real property tax year, or
    - (ii) The seller (under the law imposing the real property tax) is liable for the real property tax for the real property tax year and the tax is not payable until after the date of sale, then the portion of the tax treated under [section 164(d)(1)](/cfr/26/164.md?p=d-1) as imposed upon the seller (whether or not actually paid by him in the taxable year in which the sale occurs) shall be considered as having been paid by him in such taxable year. Such portion may be deducted by him for the taxable year in which the sale occurs, or, if at a later time, for the taxable year (which would be proper under the taxpayer's method of accounting) in which the tax is actually paid, or an amount representing such tax is paid to the purchaser, mortgagee, trustee, or other person having an interest in the property as security.
  - (2) **Purchasers using the cash receipts and disbursements method of accounting.** Under the provisions of [section 164(d)](/cfr/26/164.md?p=d), if the purchaser by reason of his method of accounting may not deduct any amount for taxes unless paid and the seller (under the law imposing the real property tax) is liable for the real property tax for the real property tax year, the portion of the tax treated under [section 164(d)(1)](/cfr/26/164.md?p=d-1) as imposed upon the purchaser (whether or not actually paid by him in the taxable year in which the sale occurs) shall be considered as having been paid by him in such taxable year. Such portion may be deducted by him for the taxable year in which the sale occurs, or, if at a later time, for the taxable year (which would be proper under the taxpayer's method of accounting) in which the tax is actually paid, or an amount representing such tax is paid to the seller, mortgagee, trustee, or other person having an interest in the property as security.
  - (3) **Persons considered liable for tax.** Where the tax is not a liability of any person, the person who holds the property at the time the tax becomes a lien on the property shall be considered liable for the tax. As to a particular sale, in determining:
    - (i) Whether the other party to the sale is liable for the tax or,
    - (ii) The person who holds the property at the time the tax becomes a lien on the property (where the tax is not a liability of any person),
  - (4) **Examples.** The provisions of subparagraphs [(1)](#d-1), [(2)](#d-2), and [(3)](#d-3) of this paragraph may be illustrated as follows:
  - (5) **Treatment of excess deduction.** If, for a taxable year prior to the taxable year of sale of real property, a taxpayer has deducted an amount for real property tax in excess of the portion of such real property tax treated as imposed on him under the provisions of [section 164(d)](/cfr/26/164.md?p=d), the excess of the amount deducted over the portion treated as imposed on him shall be included in his gross income for the taxable year of the sale, subject to the provisions of [section 111](/cfr/26/111.md), relating to the recovery of bad debts, prior taxes, and delinquency amounts. The provisions of this subparagraph may be illustrated as follows:
  - (6) **Persons using an accrual method of accounting.** Where real property is sold and the seller or the purchaser computes his taxable income (for the taxable year during which the sale occurs) on an accrual method of accounting then, if the seller or the purchaser has not made the election provided in [section 461(c)](/cfr/26/461.md?p=c) (relating to the accrual of real property taxes), the portion of any real property tax which is treated as imposed on him and which may not be deducted by him for any taxable year by reason of his method of accounting shall be treated as having accrued on the date of sale. The provisions of this subparagraph may be illustrated as follows:
  - (7) **Cross references.** For determination of amount realized on a sale of real property, see [section 1001(b)](/cfr/26/1001.md?p=b) and the regulations thereunder. For determination of basis of real property acquired by purchase, see [section 1012](/cfr/26/1012.md) and the regulations thereunder.
  - (8) **Effective dates.** [Section 164(d)](/cfr/26/164.md?p=d) applies to taxable years ending after December 31, 1953, but only in the case of sales made after December 31, 1953. However, [section 164(d)](/cfr/26/164.md?p=d) does not apply to any real property tax to the extent that such tax was allowable as a deduction under the Internal Revenue Code of 1939 to the seller for any taxable year which ended before January 1, 1954.

# §1.164-7. Taxes of shareholder paid by corporation.


Banks and other corporations paying taxes assessed against their shareholders on account of their ownership of the shares of stock issued by such corporations without reimbursement from such shareholders may deduct the amount of taxes so paid. In such cases no deduction shall be allowed to the shareholders for such taxes. The amount so paid should not be included in the gross income of the shareholder.


# §1.164-8. Payments for municipal services in atomic energy communities.

- (a) **General.** For taxable years beginning after December 31, 1957, amounts paid or accrued by any owner of real property within any community (as defined in section 21b of the Atomic Energy Community Act of 1955 ([42 U.S.C. 2304](/usc/42/2304.md))) to compensate the Atomic Energy Commission for municipal-type services (or any agent or contractor authorized by the Atomic Energy Commission to charge for such services) shall be treated as State real property taxes paid or accrued for purposes of [section 164](/cfr/26/164.md). Such amounts shall be deductible as taxes to the extent provided in [section 164](/cfr/26/164.md), [§§ 1.164-1 through 1.164-7](/cfr/26/1.164-1..1.164-7.md), and this section. See [paragraph (b)](#b) of this section for definition of the term “Atomic Energy Commission”; [paragraph (c)](#c) of this section for the definition of the term “municipal-type services”; and [paragraph (d)](#d) of this section for the definition of the term “owner”.
- (b) **Atomic Energy Commission.** For purposes of [paragraph (a)](#a) of this section, the term “Atomic Energy Commission” shall mean—
  - (1) The Atomic Energy Commission, and
  - (2) Any other agency of the United States Government to which the duties and responsibilities of providing municipal-type services are delegated under the authority of section 101 of the Atomic Energy Community Act of 1955 ([42 U.S.C. 2313](/usc/42/2313.md)).
- (c) **Municipal-type services.** For purposes of [paragraph (a)](#a) of this section, the term “municipal-type services” includes services usually rendered by a municipality and usually paid for by taxes. Examples of municipal-type services are police protection, fire protection, public recreational facilities, public libraries, public schools, public health, public welfare, and the maintenance of roads and streets. The term shall include sewage and refuse disposal which are maintained out of revenues derived from a general charge for municipal-type services; however, the term shall not include sewage and refuse disposal if a separate charge for such services is made. Charges assessed against local benefits of a kind tending to increase the value of the property assessed are not charges for municipal-type services. See [section 164(c)(1)](/cfr/26/164.md?p=c-1) and [§ 1.164-4](/cfr/26/1.164-4.md).
- (d) **Owner.** For purposes of [paragraph (a)](#a) of this section, the term “owner” includes a person who holds the real property under a leasehold of 40 or more years from the Atomic Energy Commission (or any agency of the United States Government to which the duties and responsibilities of leasing real property are delegated under section 101 of the Atomic Energy Community Act of 1955), and a person who has entered into a contract to purchase under section 61 of the Atomic Energy Community Act of 1955 ([42 U.S.C. 2361](/usc/42/2361.md)). An assignee (either immediate or more remote) of a lessee referred to in the preceding sentence will also qualify as an owner for purposes of [paragraph (a)](#a) of this section.
- (e) **Nonapplication of section 164(d).** [Section 164(d)](/cfr/26/164.md?p=d) and [§ 1.164-6](/cfr/26/1.164-6.md), relating to apportionment of taxes on real property between seller and purchaser, do not apply to a sale by the United States or any of its agencies of real property to which [section 164(f)](/cfr/26/164.md?p=f) and this section apply. Thus, amounts paid or accrued which qualify under [paragraph (a)](#a) of this section will continue to be deductible as taxes to the extent provided in this section, even in the taxable year in which the owner actually purchases the real property from the United States or any of its agencies. However, the provisions of [section 164(d)](/cfr/26/164.md?p=d) and [§ 1.164-6](/cfr/26/1.164-6.md) shall apply to a sale of real property to which [section 164(f)](/cfr/26/164.md?p=f) and this section apply, if the seller is other than the United States or any of its agencies.