Can I Claim Sales Tax Paid on a Used Car as Tax Deductible?

Warning

If a state or local municipality imposes a higher sales tax on the sale of automobiles than the general rate, a taxpayer can only take a deduction at the general sales tax rate of the locality where he purchased the vehicle. In addition, he must choose between taking a deduction for local and state income tax paid or sales tax paid, according to TurboTax. The IRS prohibits taxpayers from deducting both types of taxes in a single tax year, so vehicle owners must determine which type of tax deduction provides the most tax savings.

Taxpayers may only take a deduction for vehicle sales taxes in the year that they paid the taxes. The IRS does not allow individuals with no tax liability to carry over these deductions into future tax years. The U.S. government does not limit the amount of sales tax paid that a taxpayer can deduction in a tax year and high income earners do not face reduced deductions.

Taxpayers must keep their receipts showing how much sales tax they paid on used vehicles because the IRS requires them to prove their tax expenses for three years after the IRS receives the return. In the event of a federal tax audit, failure to keep records can result in the taxpayer owing a tax debt to the agency. Individuals who do not keep receipts must use optional sales tax tables contained in the IRS Instructions for Schedule A. Optional sales tax tables do not usually offer taxpayers a full deduction for taxes paid.

To claim used car sales tax as a deduction, taxpayers must fill out Schedule A and attach this form to their 1040 federal return. They must must check box 5b and complete line 5 of Schedule A by listing the total amount of state and local income tax paid in the previous tax year. After they total all itemized deductions in box 29, taxpayers will then add the total amount of sales paid on Form 1040, line 40.