Sales tax deduction: How it works, who is eligible and how to claim it
What is the sales tax deduction?
The sales tax deduction, which is a part of the state and local tax (SALT) deductions, lets you reduce your taxable income by up to $10,000 if you itemize. But you have to choose between claiming the state and local sales tax deduction and the state and local income tax deduction — you can’t claim both in the same year.
Taxpayers who are likely to benefit from the sales tax deduction include those who live in states with no income tax and those who made large purchases during the year. But if your state income taxes are steep and you pay a lot in property taxes, there’s a good chance those deductible expenses will get you to the $10,000 limit, and you don’t need to bother with the sales tax deduction. (State and local real estate and personal property taxes can be deducted in addition to either the income or sales tax deduction.)
Before the Tax Cuts and Jobs Act was signed into law in late 2017, there was no cap on how much you could claim as a state and local tax (SALT) deduction. Now the deduction is limited to $10,000, regardless of whether the taxpayer claims state income or state sales tax. Say, for example, that in 2024 you paid $3,000 in sales tax and $11,000 in property tax. You can deduct a total of $10,000, period.
That limitation applies to each return, so married couples filing jointly also must abide by the $10,000 cap. Married persons filing separately can each get a $5,000 deduction, but both must agree to use the same method for deducting sales taxes.
Keep in mind that the $10,000 cap on the SALT deduction is set to expire after 2025, and Congress may act to renew, eliminate or increase it at any time. President-elect Trump has said he wants to repeal the cap on the SALT deduction but it’s unclear what lawmakers ultimately will decide.
What’s deductible for tax year 2024?
The IRS offers different options for calculating the amount of your sales tax deduction:
- You can deduct the actual sales taxes you paid if the tax rate was no different than the general sales tax rate in your area. (Exceptions are made for food, clothing and medical supplies — actual sales tax on these items is deductible even if you paid less than the general tax rate.) But for this method to work, you must have tracked all your purchases and sales taxes paid during the course of the year.
- If you didn’t track your purchases and have no idea how much you spent on sales tax, the IRS provides optional state sales tax tables based on each state’s sales tax rate, your family size and your income level. You can see the tables in the IRS instructions for Schedule A. Or, there’s an even easier method: Use the IRS sales tax deduction calculator to figure out how much sales tax you can deduct.
In addition to using the sales tax amounts provided by the IRS in the tables and the calculator, taxpayers may add actual sales taxes paid for specific big-ticket items. For example, sales taxes paid for motor vehicles can be deducted up to the amount of the state and local sales tax rate, but not higher. Allowable sales tax deductions for large purchases include the following:
- Cars, SUVs, trucks, vans.
- Motorcycles.
- Motor, mobile or prefab homes.
- Materials to build or renovate a home.
- Recreational vehicles.
- Off-road vehicles.
- Aircraft.
- Boats.
Taxes spent on leased vehicles can also be deducted. Don’t include sales taxes paid in relation to your trade or business, or if you’ve already received a refund for the sales tax in the year you paid it.
How to decide which deduction to take
Only taxpayers who itemize can claim state and local tax deductions, so your first step is to decide whether to take the standard deduction or to itemize deductions. If your total itemized deductions are less than the standard deduction, then you would claim the standard deduction rather than itemizing. Expenses that can be itemized include charitable contributions, personal casualty and theft losses from a federally declared disaster, mortgage interest, and medical and dental expenses that exceed certain thresholds.
If you choose to take the standard deduction, you can’t itemize deductions, and that means you can’t claim the sales tax deduction. If, however, your deductions add up to more than the standard deduction, then it makes sense to itemize.
For 2024 (tax returns filed in 2025), the standard deduction amounts are:
- $14,600 for single filers and married couples filing separately.
- $29,200 for married couples filing jointly.
- $21,900 for head-of-household filers.
For 2025 (tax returns filed in 2026), the standard deduction amounts are:
- $15,000 for single filers and married couples filing separately.
- $30,000 for married couples filing jointly.
- $22,500 for head-of-household filers.
If itemizing is best for you, then you must choose between taking the income tax deduction and the sales tax deduction — you can’t take both. People typically pay more in state income taxes than state and local sales taxes, but it’s a good idea to total both types of expenses and compare them. For those who live in states with no income tax, it’s a no-brainer to take the sales tax deduction. Residents in states with no sales tax likely would fare better by taking the income tax deduction.
How to claim the sales tax deduction
Here are the steps to take to claim the sales tax deduction:
- Use Schedule A: Schedule A is used for claiming itemized tax deductions. Near the bottom of the Schedule A instructions are optional state sales tax tables formulated by the IRS. At the very bottom is another table for local sales tax. The worksheet in the instructions helps you calculate the tax under different scenarios, such as if you lived in different states or if the local tax rate changed during the course of the year.
- Use the IRS calculator: You can either save all your receipts from every purchase throughout the year or you can use the IRS sales tax deduction calculator to figure out your deduction. Generally, the IRS calculator can save you a lot of work.
- Identify correct income level: If you use the IRS optional state sales tax tables, be sure to consider all forms of income that you took during 2024 to identify your correct income level. For example, add up your non-taxable income such as Roth IRA distributions, tax-exempt interest from municipal bonds, veterans’ benefits, the non-taxable portion of Social Security and pension or annuity payments and other such payments. Generally, the higher your income, the more you paid out in sales taxes.
- Don’t forget major purchases: In addition to the IRS’ estimate of sales taxes you paid in your state, don’t forget to add the sales taxes you paid for the allowable large purchases made during the year, such as a car, boat, or a house. More details are provided in the instructions for Schedule A.
Bottom line
The IRS expects that you’ll take full advantage of every deduction available to you. If you determine that itemizing expenses is your best option, consider taking the state and local tax (SALT) deduction that offers the bigger tax break. If you take the sales tax deduction, be sure to keep your receipts for the big-ticket items you bought and, if you’ve taken the trouble to track actual sales taxes paid in 2024, keep all your sales receipts handy in case of an audit. Alternatively, use the IRS tables or sales tax calculator to figure your deduction.
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