The deduction is taken for the tax year in which the taxes were paid.So the duction would be made on the 2007 fedral return for the state taxes paid for the 2006 return?I don't want to create more questions, but you need to be certain that there hasn't been any oversight of step-ups in cost basis for property, Generation Skipping Transfers, split interest, and gifting rules when dealing with this type of transaction. My grandfather originally bought the property way back when. He passed away in 1969 so my grandmother would have been the sole owner at that time. When she died, half went to my mother and then to us after she passed away. So no gifts were made and no generations were skipped. What we were using as the cost basis was the appraised value listed on my mother's inventory from the probate records filed with the county. Since there are 5 of us I would use (net gains - cost basis)/5 = my cap gains. Is that what you mean by split interest? I'm not sure what a step-up in cost basis would be.~ Stillwell
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