Optional Sales Tax Deduction - information from Brookwood Tax Service

This page last updated on
December 11, 2007

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Optional Sales Tax Deduction Extended

Congress has extended the sales tax deduction, allowing people who itemize to deduct either state and local income tax or state and local sales tax. This option is especially beneficial for taxpayers living in a state with no state sales tax. The option is good until December 31, 2007 (2007 tax returns).

You are allowed to deduct the greater of your actual state sales tax paid or an amount the IRS has determined based on your income and the number of exemptions that you claim when you file.

In addition to the amounts provided in the IRS tables, you can also deduct sales tax paid on motor vehicles, boats, motor homes, and aircraft. If you purchased a very expensive car, multiple cars or another costly item of personal property such as an RV or aircraft during 2007, check to see if the sales tax deduction might be greater than the deduction for state and local income taxes.

The IRS has also specified the following additional items, but only if the tax rate on these items is the same as the general sales tax rate in your state:

Homes (including mobile and prefabricated homes); and

Home building materials and substantial additions to or renovations of your home.

The sales tax is deductible on the above items only if the state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation, and only if you purchased the materials yourself.

Taxpayers who find themselves falling under the alternative minimum tax (AMT) on their 2007 returns may also want to check the optional sales tax deduction to see if it might reduce the AMT. The sales tax deduction is allowed against AMT, but the state and local income tax deduction is not.

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Save Your Receipts Optional Sales Tax Deduction Extended

Save Your Receipts
Optional Sales Tax Deduction Extended