How to Deduct Sales Tax on a New Car

The Internal Revenue Service allows taxpayers who itemize to choose between deducting state and local income tax or their state and local sales taxes. For most people, the deduction for state and local income tax is higher. However, you might be better off deducting your state and local sale tax if you bought a new car in the previous year because of the large amount of sales taxes on the purchase. In order to claim the sales tax deduction on your federal income taxes, you must forgo the standard deduction.

Things You'll Need

• Form 1040
• Schedule A

Instructions

1. Check your car purchase receipt to determine the total amount of sales tax. In some places, you may have paid both a state sales tax and a local sales tax. Both of these are deductible.

2. Report the total amount of new-car sales tax paid on line 5 of Schedule A when you file your income taxes. You can also include the amount of any other sales taxes you paid during the year as part of this deduction.

3. Check the 5b box that says "General sales tax" to indicate which deduction you are claiming.

4. File your federal income taxes using form 1040. You must use form 1040 because you are claiming an itemized deduction. If you use another form, you cannot claim your new-car sales tax as a deduction.

References

• Internal Revenue Service: Topic 503 - Deductible Taxes
• Internal Revenue Service: Schedule A Instructions

Resources

• Internal Revenue Service: Schedule A
• Internal Revenue Service: Form 1040