Are State and Local Sales Taxes Deductible?

Many consumers pay state and local sales taxes on their everyday purchases, as well as on larger items. While these taxes are a regular part of financial transactions, their deductibility on a federal income tax return is not always straightforward. Understanding the rules surrounding the sales tax deduction can help taxpayers reduce their overall taxable income. This tax benefit allows individuals to claim a portion of the sales taxes they have paid, potentially leading to tax savings.

Eligibility and the Deduction Choice

Claiming a deduction for state and local sales taxes requires taxpayers to itemize their deductions on Schedule A of Form 1040. This differs from taking the standard deduction, which is a fixed amount set by the IRS based on filing status. For instance, in 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly. Taxpayers must determine if their total eligible itemized deductions exceed their applicable standard deduction amount to benefit from itemizing.

This deduction has an “either/or” rule: taxpayers can choose to deduct either state and local income taxes OR state and local sales taxes, but not both. This choice is part of the broader State and Local Tax (SALT) deduction. Taxpayers should compare the total amount of income tax paid versus the total sales tax paid to determine which option yields a greater deduction. For example, individuals living in states without a state income tax often find deducting sales taxes more advantageous. Taxpayers who made significant purchases during the year, incurring substantial sales tax, might also benefit more from choosing the sales tax deduction.

The total amount of state and local taxes, including sales tax, that can be deducted is subject to a limitation. For tax years beginning after December 31, 2024, the SALT deduction cap is temporarily increased to $40,000 for most filers, or $20,000 if married filing separately. This limit applies to the combined total of state and local income taxes (or sales taxes if chosen), as well as real estate and personal property taxes. The $40,000 limit is scheduled to increase slightly each year through 2029, after which it will revert to $10,000 unless Congress acts to extend the increase.

Calculating Your Sales Tax Deduction

Taxpayers have two primary methods to determine the amount of sales tax they can deduct: using actual sales tax paid or using the IRS sales tax tables. The method chosen depends on an individual’s record-keeping habits and the nature of their purchases.

The first method involves tracking and totaling the actual sales tax paid on all purchases throughout the tax year. This approach requires meticulous record-keeping, as taxpayers must retain receipts that clearly show the sales tax paid. For most everyday purchases, this can be an incredibly time-consuming task. However, this method can be particularly beneficial if a taxpayer made significant purchases, such as a new motor vehicle, boat, or materials for home improvements, where a large amount of sales tax was incurred.

Alternatively, taxpayers can use the optional sales tax tables provided by the IRS. These tables are found in the instructions for Schedule A (Form 1040) and are also accessible through the IRS website via a sales tax deduction calculator. These tables provide a standard sales tax amount based on the taxpayer’s state of residence, adjusted gross income, and family size. This method offers a simpler way to calculate the deduction for those who do not have detailed records of every sales tax payment.

A benefit of using the IRS tables is the ability to add actual sales tax paid on certain large purchases to the table amount. This includes sales tax paid on items like motor vehicles, aircraft, boats, or home building materials, allowing for a potentially larger deduction than the table amount alone.

Reporting Your Deduction

Once the deductible sales tax amount has been determined, the next step involves reporting it correctly on the federal income tax return. This ensures the calculated deduction is recognized by the IRS and contributes to reducing taxable income. The deduction for state and local general sales taxes is claimed on Schedule A (Form 1040).

On Schedule A, taxpayers will locate the “Taxes You Paid” section. Here, there is a specific line, typically Line 5a, where the choice between deducting state and local income taxes or state and local general sales taxes is indicated. To claim the sales tax deduction, the appropriate box is checked, and the calculated amount of sales tax is entered.

The amount entered on Schedule A, Line 5a, contributes to the total itemized deductions. This total is then subtracted from the taxpayer’s adjusted gross income (AGI) on Form 1040, thereby reducing their overall taxable income. Maintaining accurate records, whether for actual sales tax paid or for large purchases added to the IRS table amount, is important in case the IRS requires verification.