When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Thisapplies whether you use the cash method or an accrual method ofaccounting. Under an accrual method, you can deduct a tax before you pay it ifyou meet the exception for recurring items discussed underEconomic Performance in Publication 538.You can alsochoose to ratably accrue real estate taxes as discussed later underReal Estate Taxes. Limit on accrual of taxes.A taxing jurisdiction can require the use of a date for accruingtaxes that is earlier than the date it originally required. However,if you use an accrual method and can deduct the tax before you pay it,the accrual date for federal income tax purposes is the originalaccrual date. Use the original accrual date for all future years aswell. Example.Your state imposes a tax on intangible and tangible personalproperty used in a trade or business conducted in the state. This taxis assessed and becomes a lien as of July 1. In 1999, the state, bylegislative action, changes the assessment and lien dates from July 1,2000, to December 31, 1999, for property tax year 2000. BecauseDecember 31 is earlier than the original accrual date, the tax forfederal income tax purposes accrues on July 1, 2000. Uniform capitalization rules.Blankenberge hotel roomsUniform capitalization rules apply to certain taxpayers who producereal or tangible personal property for use in a trade or business orfor sale to customers. They also apply to taxpayers who acquireproperty for resale. Under these rules, you may have to either includein inventory costs or capitalize certain expenses related to theproperty, such as taxes. For more information, see Publication 551. Carrying charges.Carrying charges include taxes you pay to carry or develop realestate or to carry, transport, or install personal property. You canchoose to capitalize carrying charges not subject to the uniformcapitalization rules if they are otherwise deductible. For moreinformation, see chapter 11. Refunds of taxes.If you receive a refund for any taxes you deducted in an earlieryear, include the refund in income only to the extent the deductionreduced your tax in the earlier year. For more information, seeRecovery of amount deducted in chapter 1. TaxTip: You must include any interest you receive with state or local taxrefunds in income.