Ask the taxgirl: Used Car Sales Tax Deduction

Taxpayer asks:

Just before Christmas, I bought a 2007 VW Jetta. It was a great deal since it had very low miles on it. When I bought it, the dealer said that I could deduct the sales tax from my taxes but I read on your site that the car has to be new, not just new to you. Was this just a slimy, used car salesman trick?

Taxgirl says:

The post you’re referring to is this one and was specifically about whether the purchase of a new car qualified for the new sales tax deduction – the one that got all of the press that increased your standard deduction. The deduction is available to taxpayers who bought new vehicles from February 17, 2009, through December 31, 2009. In those states that don’t have a sales tax (Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon), taxpayers can take a deduction for other taxes or fees paid. The deduction is limited to state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle and phase outs for taxpayers whose modified AGI begin at $125,000 for individual filers and $250,000 for married taxpayers filing jointly.

What your dealer is likely referring to is the option at Schedule A to deduct your state and local sales taxes or your state and local income taxes. This was part of the American Jobs Creation Act of 2004 and has been extended for a few years at a time since – it still applies for 2009. So, for 2009, you can elect to deduct state and local general sales taxes instead of state and local income taxes as a deduction on Schedule A. You cannot deduct both.

If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and use that amount to figure your deduction. If you didn’t save your receipts, you can use the optional general sales tax tables in the instructions for Schedule A or use the IRS’ Sales Tax Deduction Calculator! I played around with it this morning – it’s pretty cool.

If you go the actual expenses route, you can deduct the actual sales taxes that you paid if the tax rate was the same as the general sales tax rate for your locality. On the plus side, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. But, and this may apply to you, if you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle.

So, if you itemize your taxes, you might still be able to claim sales taxes paid as a deduction on your Schedule A – which would make your dealer right. Run the numbers and see how they come out. Depending on the income tax rate in your state, this could make sense for you.

Oh, and one more caveat: the sales tax deduction is available to individual taxpayers for items of personal use. Do not include sales taxes paid on items used in your trade or business.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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8 thoughts on “Ask the taxgirl: Used Car Sales Tax Deduction

  1. i bought a new car in rhode island in august of 2009. i like to take credit
    for tax paid which is about 1500.00. what line do i put this on 1040 federal form.

  2. Joe, if you’re taking it as an increase to the standard deduction (the special deduction for new cars for 2009), take it on Schedule L. If you’re taking it as part of your “regular” sales tax deduction bc you itemize and opt to claim sales tax instead of income tax, take it on Schedule A (line 7).

  3. Was told that there was a choice to use sales taxes or property taxes?
    when doing taxes. I was told that it depended on the amount of each what would be used. Since there was no sale done on property the proptery tax amount is what has been used in the past.

    The value of the property went down this year I don’t have any thing from the county recorders office. do I need to have that to show the change. They said that they would reassisting this year, with the way the economy is going. (I will check with county to see if there was an assessment done last year).

  4. Since the Car Sales Tax Deduction was extended to include 2010, I have a follow-up question. In November we purchased a previously leased 2010 vehicle. Since leased vehicles do not apply, my question is, would we qualify as being the 1st Owner of the new 2010 vehicle? Thanks

  5. That’s a great question, Mike. My gut is no because ostensibly the owner of the car was the lease holder. Let me see if I can find out more, though.

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