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Tax Relief 101: Sales Tax Deduction Rules for 2006

We learned last year that taxpayers who itemize have the option of claiming their state and local income taxes or their state and local sales taxes as an itemized deduction on their 2005 returns and that this year will be the last year you will have that option (on your 2006 returns for your 2005 Tax Year).

The rule is that you can deduct actual state and local sales taxes (actual means you must keep receipts) or you can deduct values taken from the sales tax tables. By using the optional general sales tax tables, you don’t need to keep receipts. When you use the optional tables, you can add the tax on big purchases such as a car, plane, boat, mobile home, or home renovation to the total. So if you read off the table that you are eligible to claim a $779 deduction for sales tax and you just bought a $10,000 car in Maryland, you can add $500 (MD Tax is 5.0%) to the optional table value for a total deduction of $1,279.

Where are the sales tax tables? Where is Publication 600?
The tax tables that were available as Publication 600 last year were rolled into the 2005 Instructions for Schedules A & B [3] (Form 1040) on pages A-10 to A-11.

For more information, please read the press release from the IRS [4].