If you itemize deductions, the IRS allows you to deduct either:
- State and local income taxes, or
- State and local sales and use taxes
You can't claim both. The tax software automatically compares the available deduction amounts and uses the option that provides the greater benefit for your return.
This deduction is reported on Schedule A (Itemized Deductions) and is subject to the overall limits that apply to state and local tax deductions.
Who Benefits Most from the Sales Tax Deduction?
The sales tax deduction is often most valuable for taxpayers who live in states that don't impose a state income tax, including:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
However, taxpayers in any state may benefit if:
- They paid more in sales tax than state income tax during the year, or
- They made a large purchase that generated significant sales tax
For some taxpayers, especially those with major purchases, the sales tax deduction can be larger than their state income tax deduction.
Can I Add Tax Paid on Large Purchases?
Yes.
In addition to the IRS sales tax table amount, you may be able to add sales tax paid on certain qualifying large purchases.
Examples include:
Motor Vehicles
You may add sales tax paid on:
- Cars
- Motorcycles
- Trucks
- Vans
- SUVs
- Recreational vehicles (RVs)
- Motor homes
- Off-road vehicles
Only the amount of tax equal to the general sales tax rate can be included.
Boats and Aircraft
You may add sales tax paid on:
- Boats
- Personal watercraft
- Aircraft
Again, only the portion up to the general sales tax rate is allowable.
Homes and Major Home Improvements
You may also include applicable sales tax paid on:
- Newly constructed homes
- Manufactured or mobile homes
- Prefabricated homes
- Major home additions
- Significant home renovations
Only the amount attributable to the general sales tax rate may be added.
Leased Vehicles
State and local general sales tax paid on a leased vehicle may also qualify.
What Can't Be Included?
Do not include sales taxes paid on items used in a trade or business. Business purchases are generally deducted through your business return rather than as an itemized deduction.
How Can I Calculate My Sales Tax Deduction?
The IRS provides two methods.
Option 1: Use Your Actual Receipts
You can save receipts throughout the year and total the state and local sales taxes you actually paid.
This method may provide a larger deduction if:
- You made many taxable purchases, or
- Your actual sales tax paid exceeds the IRS table amount
Be sure to maintain records that support the deduction.
Option 2: Use the IRS Sales Tax Tables
Most taxpayers use the IRS Optional Sales Tax Tables.
The tables estimate your deductible sales tax based on factors such as:
- Income
- Filing status
- Household size
- State of residence
If your locality qualifies for an additional local sales tax adjustment, the IRS instructions provide guidance for adding that amount.
After determining the table amount, you can add any qualifying sales taxes paid on large purchases.
Can I Use the IRS Sales Tax Deduction Calculator?
Yes.
The IRS provides an online Sales Tax Deduction Calculator that estimates your allowable deduction.
The calculator typically asks for:
- Tax year
- Income range
- ZIP code
- State of residence
- Sales tax paid on qualifying major purchases
- Dependents claimed
Many taxpayers find this tool easier than manually working through the IRS tables.
How Do I Enter Sales Tax Information in the Software?
To enter your sales tax deduction information:
- Go to Federal.
- Select Deductions.
- Choose Select My Forms.
- Open Itemized Deductions.
- Select Taxes You Paid.
You'll be asked to enter:
- Your ZIP code
- The number of days you lived in the state during the tax year
- Any qualifying sales tax paid on major purchases
The software will calculate the allowable sales tax deduction and automatically compare it to your state income tax deduction.
If you've entered both, the program will generally use whichever deduction provides the greater tax benefit.
Do I Need to Itemize to Claim the Sales Tax Deduction?
Yes.
The sales tax deduction is an itemized deduction reported on Schedule A. If your total itemized deductions don't exceed your standard deduction, the standard deduction will usually provide the greater benefit and be selected automatically.