New Car Sales Tax Deduction 2011, 2012

If you want to take advantage of the new car sales tax deduction you will have to make the choice of electing to deduct sales tax instead of state and local income taxes. This is a great choice for people who do not have state income taxes.
Visit our State Income Tax Rate page to learn more about your state income tax rates or to see if your state does not have state income tax.

Sales taxes are deducted on Schedule A Tax Form 1040. If you make the choice to deduct sales taxes, you cannot deduct state and local income taxes.

General Sales Tax Deduction
If you choose to deduct the general sales taxes, you can either use your actual expenses or the state and local sales tax tables to figure your sales tax deduction.

Actual Expenses Sales Tax Deduction
Typically, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. The sales taxes on food, clothing, medical supplies, and vehicles are deductible as a general sales tax and it doesn’t matter if the tax rate was less than the general sales tax rate.

Let’s say you paid the sales tax on a new vehicle which was a higher tax rate than the general sales tax rate, you are only allowed to deduct the amount of tax that you would have paid at the general sales tax rate on that vehicle.

If you do choose to use the actual expenses method, you have to keep all of your receipts, so you have proof to show the general sales taxes that were paid.

American Recovery and Reinvestment Act of 2009

In hopes of reviving the automobile industry and the economy,  the American Recovery and Reinvestment Act of 2009 included a new tax deduction for state and local sales and excise taxes paid on new vehicle purchases. The vehicles had to be brand new to qualify for the tax deduction for new car sales taxes.

The bad news is the tax deduction has expired a long time ago on December 31st of 2009. Now for the tax years of 2010 and 2011 previously enacted legislation allows taxpayers who itemize tax deductions to claim either state and local income taxes or state and local general sales taxes, including sales taxes on new vehicles.

Motor Vehicles Qualifying for the New Car Sales Tax Deduction
If you are wondering what kind of vehicles qualify for the new car sales tax deduction, I have a list for you.

Vehicles That Qualify:

• Cars
• Motorcycles
• Motor Homes
• Recreational Vehicles
• Sport Utility Vehicles
• Trucks
• Vans
• Off Road vehicles
• Also Leased Motor Vehicles

Vehicles used for your trade or business purposes do not qualify.

Tax Deduction Help for New Cars

TurboTax Online can help ensure you claim all of the tax deductions you qualify to claim. There may be tax deductions you don’t even know about that could save you hundreds of dollars on your tax bill or give you a nice tax refund.

TurboTax also has tax return calculators which can help you figure out which method of tax deductions would be best for your unique situation in life. You can try the tax return calculators for free to see if you should take the general sales tax deduction or the actual expenses for your new car sales tax deduction.