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Is the $200 tax on an NFA item deductible on your federal return?

John Pierce

Staff member
May 5, 2006
It is the start of a new year, and many of us are reluctantly turning our attention to the filing of taxes.

That was certainly the case for the client who emailed me this morning and asked whether or not the $200 excise tax that is paid pursuant to the manufacture or transfer of an NFA item is deductible on his federal return.

It is certainly a valid question. After all, certain other taxes represent deductions from your federal return. Why not the NFA transfer tax?

Let’s take a closer look at the tax statutes.

26 U.S. Code § 164 tells us which taxes are deductions for purposes of your federal return. These include

(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.
(6) Qualified motor vehicle taxes.

This code section goes on to note that “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.”

In addition,the IRS specifically mentions ‘stamp taxes’ in their Tax Topics page on deductible taxes .

“Some taxes and fees you cannot deduct on Schedule A include federal income taxes, Social Security taxes, transfer taxes (or stamp taxes)”

So … while I always encourage my clients to take all deductions and exemptions for which they are legally eligible, that stack of canceled checks to the BATFE isn’t one of them.

For more details, see my law office blog.