It seems like every other driver in my part of Texas has bought a car.
OK, maybe not every other driver, but lately I've seen lot of cars bearing the sign of being recently purchased, paper tags.
Photo of newly-purchased Ferrari with paper tags courtesy Fred, Greg, and Joan's Corvette do the Great Race!
Maybe everyone was just waiting to make sure they could deduct their vehicles' sales taxes.
The itemizing option to choose between deducting state and local income taxes or state and local sales taxes expired at the end of 2011. The American Taxpayer Relief Act renewed the deduction, extending it through 2013 and making it retroactive to the 2012 tax year.
But some folks might not have wanted to take a chance on what Congress might do. That's usually a wise move, underscored this year by Representatives and Senators pushing off 2012 tax decisions until Jan. 1 of this year.
So perhaps my neighbors waited until 2013 to buy their vehicles so there wouldn't be any question about the tax break.
Yeah, I'm sure that's the deal. I am surrounded here in Austin by a lot of tax savvy Texans.
Kidding aside, my fellow Lone Star State residents were anxiously following the sales tax deduction option. We are one of nine states with no income tax on wages or salaries, so the ability to claim sales taxes on Schedule A has been a welcome tax development.
Deducting the sales tax on your new car or other major purchases also is today's Daily Tax Tip.
You can either keep all your sales receipts and use that total as your deduction claim. Or you can use the optional method, in which you claim the sales tax amount that the Internal Revenue Service has calculated as the average for residents of your state.
Most folks take the easier pre-figured table route.
But the tables, which are found in the Schedule A instructions, don't take into account big ticket items that generally aren't purchased every year. These include the:
- purchase or lease of a vehicle (this covers not just cars, but also trucks, motorcycles or motor homes),
- purchase of a boat or aircraft, or
- purchase of a home, including a mobile or prefabricated home, or substantial renovation of a residence.
In these cases, you get to add the sales tax paid on these items to your state's average table amount.
Of course, there are a few requirements.
The sales taxes charges on the big ticket items must be the same rate as the general sales tax.
For the home-building or renovation sales taxes, you, not your contractor, must have purchased the materials.
You can work around the home material rule if, under your state law, your contractor is considered your agent in the construction of or major renovation to the home. Your contract with the builder/renovator must state that he is authorized to act in your name and must follow your directions on construction decisions. In this case, you will be considered to have purchased the tax-deductible material.
The instructions for Schedule A contain a worksheet to figure your sales tax deduction when you have a major purchase to include. You'll want to add your local sales taxes here, too.
If you use tax software, that program will take care of calculation. Or you can use the IRS' online sales tax deduction calculator.You also might find these items of interest: