Sales Tax Deduction

• You have several ways to deduct the sales tax on a new car purchase on your federal tax return. First, if you paid sales tax in 2010 for a car you purchased in 2009, you may take a sales tax deduction even if you do not use Schedule A to itemize deductions. Second, you may take a sales tax deduction at the general tax rate if you itemize deductions on Schedule A. And you may take a sales tax deduction on a business vehicle if you claim business deductions on Schedule C.
  
  

Restrictions

• The amount of sales tax that you can claim as a deduction depends on your individual circumstances. Factors such as your income, your filing status, the date you bought your car, the purchase price and the sales tax rate in the state where you purchased it are several of the variables that affect the amount of your sales tax deduction. You may use IRS worksheets to help calculate the amount of your sales tax deduction.
  
  

Timing

• If you financed your car, you paid your sales tax with funds from the loan that your lender advanced to you. You took on a new liability in the form of your car loan, which you must repay. Although you may need several years to repay the car loan, you already paid your sales tax in one lump sum when you purchased the car. Therefore, generally speaking, you can deduct the new car sales tax as of the day you paid it with your loan proceeds.
  
  

States Without Sales Tax

• Seven states do not have a sales tax: Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon. If you are a resident of one of these states, federal tax law permits you to deduct certain other expenses that you paid in 2010 for a 2009 purchase. Generally speaking, you may deduct any fee that the dealer assesses when you buy the car and that is based on the sales price of the car or that is a fixed, per-unit cost.