Sales tax deduction: What you should know

Lower your taxes with this deduction — but you’ll need to itemize.

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If you live in a state with high sales tax or you’ve made some large purchases this year, you may benefit from the sales tax deduction.

What is a sales tax deduction?

The sales tax deduction lets you write off all state and local sales taxes for the year. It reduces your tax bill dollar for dollar.
When you file your taxes, you can either write off sales tax or state and local income tax — but the IRS won’t let you do both. You must also itemize the deduction to claim it.

How much is the sales tax deduction in 2019?

The sales tax limit for 2019 is $10,000, or $5,000 if you’re married and filing separately. These are for taxes due in April 2020. This limit includes property and sales tax combined. The 2020 sales tax deduction, for taxes due in April 2021, remains unchanged.

Limits

Sales taxes are deductible, but there are limitations:

How much was the sales tax deduction worth in previous years?

The deduction limits changed in 2018 with the Tax Cuts and Jobs Act. Below are the figures for the sales tax deduction in 2018, 2017 and 2016:

Sales tax deduction limits for 2016–2018
YearSingle, married filing jointly, head of household, qualifying widowerMarried, filing jointly
2018$10,000$5,000
2017No limitNo limit
2016No limitNo limit

Who qualifies for the sales tax deduction?

Anyone who pays state or local sales tax qualifies for the deduction. But whether you should claim it depends on a few factors.

If you answer “yes” to these two statements, then you should take the deduction:

  • You paid more in sales tax than you did in income tax this year
  • You get a larger tax refund if you itemize instead of taking the standard deduction

How to calculate the sales tax deduction

There are two different methods you can use to calculate the sales tax deduction: the actual expense method or the optional sales tax table method. Or you can use a combination of both.

What qualifies for the sales tax deduction?

Popular items you can claim under the deduction include:

  • Airplanes
  • Boats
  • Cars
  • Clothing
  • Food
  • Furniture
  • House
  • Home improvements
  • Medical supplies
  • Motorcycles
  • Motor homes
  • Transportation costs

How to claim the sales tax deduction

You’ll use Schedule A and Form 1040 to claim the sales tax deduction. Here are the steps you should take:

  1. Gather all of your purchase receipts and add up your total paid sales tax for the year.
  2. Use the IRS Sales Tax Calculator to calculate your estimated deduction. Compare this amount to your total in Step 1 and use the method that results in the larger deduction.
  3. Report your total sales tax deduction on line 5a of Schedule A. Be sure to check the box next to line 5a to let the IRS know you’re claiming sales tax instead of income tax.
  4. Itemize the rest of your deductions using Schedule A, then take the number listed on line 17 of Schedule A and enter it on line 9 of Form 1040 or 1040-SR.

What to watch out for

Keep the following in mind if you plan on claiming the sales tax deduction:

  • Special rule for married, filing separately. If one spouse chooses to deduct the sales tax instead of the income tax, the other spouse must do the same. You both must use the same method to claim it.
  • Itemizing may not save you more money. You should only itemize if the total of all your deductions is greater than your standard deduction, which ranges from $12,200 to $24,400 depending on your filing status. Otherwise, taking the standard deduction will save you more money.
  • Keep detailed records of expenses. Claiming the deduction using the actual expense method requires thorough bookkeeping. Make sure you keep track of any receipts, checks and bank statements proving you paid sales tax.

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There are other credits and deductions similar to the sales tax deduction that can lower your tax bill even more. These include:

  • State and local tax deduction. If you decide you’d rather claim state, local and foreign income tax instead, you’ll do that using the state and local tax deduction, also known as SALT.
  • Electric vehicle tax credit. You could save up to $7,500 on taxes if you bought a qualified plug-in electric or hybrid vehicle this year.
  • Vehicle tax deductions. You can deduct operational costs from your taxes if you’re self-employed and use your car for work.

Bottom line

If you made some major purchases this year or live in a state with high sales tax, taking the sales tax deduction may be the right call. But if you’re a high-income earner or live in a state with high income tax, claiming that may save you more money.

Before filing your taxes consider hiring a professional or shop around for an online service that can help you file your return.

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