Buying a new car can seem like a huge investment, especially when you add in the sales tax and other fees. The good news is, you may be eligible to deduct the sales tax from your car purchase. Learn how to deduct vehicle sales taxes in this article.
What types of vehicles are eligible for a sales tax deduction?
Sales tax deductions aren’t limited to just automobile purchases. You can deduct the sales tax if you recently bought the following types of vehicles:
- Motorcycles
- Boats
- Airplanes
- Motor homes
How to deduct vehicle sales tax
To deduct the sales tax from your new vehicle, you must itemize your deductions using Schedule A. This form calculates the specific expenses you can write off from your tax return if you’re not taking the standard deduction. The standard deduction is a set amount you can deduct based on your age, income, filing status, and other factors.
To deduct vehicle sales tax, you can use one of the following methods:
- Save your sales receipts and deduct actual sales tax throughout the year
- Use the IRS sales tax tables in the instructions for Schedule A
- Use the IRS sales tax deduction calculator to figure out your deduction
To learn how to claim the state and local tax deduction for your vehicle using TaxSlayer, read How do I calculate my deduction for state and local taxes?
How much sales tax can I deduct?
Until 2025, your household can deduct up to $10,000 of sales tax per year. The $10,000 includes property taxes, sales, state, and local taxes – so you’ll have to choose between deducting your state and local income taxes or state and local sales and use taxes.
Note, this deduction mainly benefits taxpayers in states without income tax. But if you paid more in sales tax this year than you paid in state income tax, then deducting your sales tax could be more beneficial for you.
Can I deduct sales tax if I finance my vehicle?
You will be charged sales tax regardless of how you pay for the vehicle. Keep in mind that the sales tax deduction can still be applied, even if you finance or lease it. The only states that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Michigan.
If I bought a car in another state, where do I pay sales tax?
If you buy a car out of state and bring it to your home state, you’ll need to determine how sales tax works in that situation. Since sales tax laws are different for every state, you’ll want to do some homework before making your purchase.
Normally, if you buy a vehicle out of state, the dealer will collect the sales tax and send it to the pertinent agency in your home state, leaving you to pay the difference if necessary. To make this process easier, ask your dealer for a bill of sale that includes the sales tax. This will help you avoid double taxation when registering your vehicle at your state’s Department of Motor Vehicles (DMV) office.
Want to make the itemizing process easier? TaxSlayer can find all the tax breaks you’re eligible for, so you can get your maximum refund guaranteed.
