Wednesday, January 5, 2011

Sales Tax

Q.  The salesperson who sold me my Trailer told me a new deduction was available to deduct the sales tax. I take the standard deduction and don't find a place to put the sales tax I paid anywhere on the return. Where does it go? RA, Arizona

A.  You received a partial explanation. This special sales tax deduction, which is limited to a purchase price of $49,500 was designed to stimulate car sales after the expiration of the successful Cash for Clunkers program. It applies only to the purchase of new vehicles and can only be taken if you itemize your deductions on Schedule A of your Individual Tax Return, Form 1040. There is a special worksheet to calculate the deductible amount on page 2 of Schedule A.If you claim any state income tax deduction, you will not qualify to deduct any sales tax.

If you purchased a used RV, you still may be able to itemize the sales taxes paid under general sales tax, Schedule A on line 5b. The IRS has an excellent worksheet for this purpose. Remember, you can deduct sales taxes only if you don't deduct state income taxes on Schedule A line 5a. Since many full-time RVers live in states without income taxes, this could be an excellent deduction if you itemize!

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