Sales Tax Deduction Option, State and Local
The Tax Relief and Health Care Act of 2006 extended the election to deduct state
and local general sales taxes for 2006. The act was enacted after Schedule A (Form
1040), Itemized Deductions, and its instructions were printed. Because we were not
able to include the instructions for figuring the deduction in the Schedule A instructions,
we are providing this publication to help you figure this deduction.
You can elect to deduct state and local general sales taxes instead of state and
local income taxes as a deduction on Schedule A. You cannot deduct both.
To figure your deduction, you can use either:
- Your actual expenses, or
- The optional sales tax tables plus the general sales taxes paid on certain
specified items.
IRS Publication 600,
Optional State Sales Tax Tables, helps taxpayers determine their sales tax deduction
amount in lieu of saving their receipts throughout the year. Taxpayers use their
income level and number of exemptions to find the sales tax amount for their state.
The table instructions explain how to add an amount for local sales taxes if appropriate.
Taxpayers also may add to the table amount any sales taxes paid on:
- A motor vehicle, but only up to the amount of tax paid at the general sales tax
rate; and
- An aircraft, boat, home (including mobile or prefabricated), or home building materials,
if the tax rate is the same as the general sales tax rate.
For example, the State of Washington has a motor vehicle sales tax of 0.3 percent
in addition to the state and local sales tax. A Washington state resident who purchased
a new car could add the tax paid at the general sales tax rate to the table amount,
but not the 0.3 percent motor vehicle sales tax paid.
Taxpayers will claim the deduction on line 5 of Schedule A, checking a box to indicate
whether the amount represents sales tax or income tax.
While this deduction will mainly benefit taxpayers with a state or local sales tax
but no income tax — in Alaska, Florida, Nevada, South Dakota, Texas, Washington
and Wyoming — it may give a larger deduction to any taxpayer who paid more in sales
taxes than income taxes. For example, you may have bought a new car, boosting your
sales tax total, or claimed tax credits, lowering your state income tax.
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