State & Local Taxes

If you itemize income tax deductions, you have the option of claiming your state and local sales tax or state and local income tax for the year. Be sure to determine which amount will be larger, because you can't claim both.

If you choose to deduct income tax, include your withholding and estimated tax payments for the current year as well as any balance due from a prior year. If you credited an overpayment from last year's tax return to his year's estimated tax payment, be sure to include that amount too. You can deduct the state or local sales or excise tax on a new motor vehicle purchased after Feb. 16, 2009 and before Jan. 1, 2010. If you are not itemizing deductions, add this amount to your standard deduction. If you are itemizing deductions and are claiming the deduction for state and local income tax, enter the deduction on Schedule A, line 7. If your adjusted gross income (AGI) is $135,000 or more ($260,000 or more if you are Married Filing Jointly), you can't claim the deduction. If the purchase price of the motor vehicle is more than $49,500, you can deduct only the tax attributable to the first $49,500 of the purchase price. If you're subject to Alternative Minimum Tax (AMT) and have a state tax refund, it may be better for you to claim the sales tax deduction even if it's smaller than the income tax deduction.

If you choose to deduct sales tax, you can deduct either the actual amount you paid or the amount from the table in the Schedule A instructions. You can add to the amount in the table the sales tax you pay on a car as well as other items specified in the instructions.