The Sales Tax Deduction: An Overview
The sales tax deduction is a tax deduction that allows taxpayers to deduct state and local general sales taxes paid during the tax year. This deduction is available to taxpayers who itemize their deductions on Schedule A of their federal income tax return.
Limitation on the Sales Tax Deduction
Beginning with tax years after 2017, the amount of state and local taxes, including sales tax, is limited to a maximum of $10,000 ($5,000 if married filing separately). This limitation was introduced through the Tax Cuts and Jobs Act, which was signed into law in late 2017.
Deductible Expenses
The sales tax deduction allows taxpayers to deduct state and local sales taxes or state and local income taxes paid in a given tax year, but not both together. Taxpayers who choose to deduct sales taxes cannot also deduct income taxes, and vice versa.
Large Purchases
Taxpayers who made large purchases or renovations during the tax year may benefit from the sales tax deduction. This is because the deduction is based on the total amount of sales tax paid during the year, regardless of the type of purchase.
Itemizing Deductions
Taxpayers can choose to itemize deductions instead of taking the standard deduction if they determine it will lower their tax bill. Itemizing deductions means listing all of your eligible deductions on Schedule A of your tax return. The sales tax deduction is one of many itemized deductions that taxpayers can claim.
State and Local Taxes
In addition to the sales tax deduction, taxpayers can also deduct state and local real estate and personal property taxes. These deductions are also subject to the $10,000 limitation.
Conclusion
The sales tax deduction can be a valuable tax break for taxpayers who itemize their deductions. However, it is important to note that the deduction is limited to $10,000 and that taxpayers cannot deduct both sales taxes and income taxes in the same year.
Sources
FAQs
What is the standard sales tax deduction for 2017?
There is no standard sales tax deduction for 2017. The sales tax deduction is based on the actual amount of sales tax you paid during the year.
How do I claim the sales tax deduction?
You can claim the sales tax deduction by itemizing your deductions on Schedule A of your federal income tax return.
What is the limit on the sales tax deduction?
The sales tax deduction is limited to $10,000 ($5,000 if married filing separately) for tax years after 2017.
Can I deduct both sales tax and income tax?
No, you cannot deduct both sales tax and income tax in the same year. You must choose one or the other.
What if I made large purchases during the year?
If you made large purchases during the year, you may benefit from the sales tax deduction. This is because the deduction is based on the total amount of sales tax you paid during the year, regardless of the type of purchase.
Can I deduct sales tax on services?
No, you cannot deduct sales tax on services. The sales tax deduction only applies to sales tax on the purchase of goods.
What if I live in a state with no sales tax?
If you live in a state with no sales tax, you cannot claim the sales tax deduction.
What if I don’t have receipts for all of my sales tax payments?
If you don’t have receipts for all of your sales tax payments, you can use the IRS’s optional sales tax tables to estimate your deduction.