Question: My wife and I recently purchased two new cars and had to pay over $15,000 in sales tax. Will we be able to deduct the sales tax on our individual income tax return as a federal itemized deduction?
Answer: Sales tax was a deduction until the 1986 Tax Reform Act “simplified” the tax system. The 2004 Jumpstart Our Business Strength Act, enacted Oct. 22, 2004, provided that at the election of the taxpayer, state and local general sales tax may be taken as an itemized deduction in lieu of the itemized deduction provided under present law for state and local income taxes. Taxpayers have two methods with respect to calculating the sales tax deduction amount. Taxpayers are able to deduct the total amount of general state and local sales taxes paid by accumulating receipts showing general sales taxes paid. Alternatively, taxpayers may use tables created by the Internal Revenue Service. These tables are based on average consumption by taxpayers on a state-by-state basis taking into account filing status, number of dependents, adjusted gross income and rates of state and local general sales taxation.
Taxpayers who use the Internal Revenue Service tables may, in addition to the table amounts, deduct eligible general sales taxes paid for the purchase of motor vehicles, boats, aircraft, homes and materials to build a home. However, if the state and local income tax deduction calculates higher than your sales tax deduction, you will be better off taking the higher state and local tax deduction amount.
There are many other expensive items taxes on which cannot be added to the sales tax table amount. These include expensive home furnishings such as furniture, appliances and high-end audio or video components. A taxpayer who purchases such items should keep receipts for all sales taxes. Also, an individual who is planning to pay for a large party on which sales taxes are paid, such as a catered wedding reception should save receipts to preserve the possibility of achieving a larger actual deduction than would be achieved under the tables.
On Dec. 15, 2015, the state and local general sales tax deduction was made permanent with the signing of the PATH Act.
Please note that 2025 tax legislation limits your federal deduction for state and local taxes (including sales tax) to $40,000 per year for 2025 and $40,400 for 2026 (known as the State and Local Tax, or SALT, limitation). Therefore, the benefit of the sales tax deduction, if any, is dependent upon the amount of other qualified tax deductions available to you along with potential income phaseouts.
Barry Dolowich is a certified public accountant and owner of a full service accounting and tax practice with offices in Monterey. He can be reached at (831) 372-7200. Please address any questions to PO Box 710 Monterey, CA 93942 or email: bdolowich@gmail.com
