Sales Tax Deduction Expires This Year

For the past several years, it has been an option for taxpayers that itemize their deductions to choose between deducting state income tax or a formulaic estimate of their state and local sales tax, plus the specific sales taxes on any “big ticket” items, such as automobiles.

During 2009, there was a new wrinkle added, part of ARRA 2009: for this year only, if you purchase a vehicle between February 17, 2009 and December 31, 2009, you can deduct the sales tax (within a liberal limit) “above the line”, in addition to, your standard or itemized deductions. (see this link for more specifics)

These two provisions are currently set to expire at the end of the 2009 calendar year.  It is unclear how much impact the new, 2009 auto sales tax deduction has had on the automobile industry (which was the primary reason behind this deduction) – so it is possible that Congress may see fit to extend this provision into next year.  We’ll just have to wait and see.

At any rate, it is not likely, in my humble opinion, that the itemized deduction of sales tax will be extended, as this deduction doesn’t appear to have had a stimulating economic impact – most folks don’t even know it’s an option.

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Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry.  . Read more from this author