Vehicle sales tax deduction when vehicle is used..

[AZ-Tax]

for Sch C business and standard mileage is taken. I believe standard mileage includes; depreciation, gas, oil, insurance, repairs, vehicle registration and vehicle tax but what about initial sales tax upon purchase of the vehicle? If not then it should be a Sch A, form 1040 potential deduction.

[Jiggers]

Sales Tax added to basis

for Sch C business and standard mileage is taken. I believe standard mileage includes; depreciation, gas, oil, insurance, repairs, vehicle registration and vehicle tax but what about initial sales tax upon purchase of the vehicle? If not then it should be a Sch A, form 1040 potential deduction.

I think that when the vehicle is purchased and depreciated that the sales tax must be added to the cost and that is the basis for depreciation.

Since the standard mileage rate includes depreciation, I would say that you do not get a deduction for the sales tax as a Schedule A item.

This assumes 100% business use.

However, anything less than 100%, such as 75% business use, I would put 25% of the sales tax on the Schedule A.

[TaxLadyinPA]

Really?

I thought that sales tax paid was not allowed on depreciable assets. I always have it split out of equipment {vehicles included} on the federal business return and they can claim it paid on Sch A [which in our state they rarely get to use the sales tax paid because state and local tax almost always is more].

Then when I get to the state return (at least in PA) they can deduct sales tax paid on depreciable assets as a separate line expense item.

[David1980]

Cost as Basis
The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception, below), freight charges, and installation and testing fees. The cost includes the amount you pay in cash, debt obligations, other property, or services.

Exception. You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). If you make that choice, you cannot include those sales taxes as part of your cost basis.

So basis for depreciation includes sales tax, unless you elect to deduct sales tax in which case it doesn't.

[Nashville]

No Double Benefit

I say take the sales tax to your maximum benefit, either deduct the sales tax or add it to your depreciable basis if you choose to deduct "actual" instead of "mileage" method.

But not both. No deduction is supposed to yield a double benefit.

But now rises the question of what is to happen in 2009. Sales taxes for a new vehicle will be deductible whether you itemize or not, similar to the way property taxes were added to the standard deduction in 2008.

Does this mean there may a scenario where you can deduct BOTH the sales tax and ALSO state income tax on Schedule A? Shouldn't be, but I wonder if any of you know the actual mechanics of this will all work, and whether it could slip through the cracks.

[TaxLadyinPA]

Big mouth and Big feet

GGGRRRRRRRRR I could wrap myself right upside my head when I open my mouth and stick my foot in it .......

You are sooooooo right !!!!!

I knew that .... I don't even know where my head was when I said that

Good thing you were here to smack me

[David1980]

Does this mean there may a scenario where you can deduct BOTH the sales tax and ALSO state income tax on Schedule A? Shouldn't be, but I wonder if any of you know the actual mechanics of this will all work, and whether it could slip through the cracks.

It looks that way, but is that so bad? Right now with the sales tax or income tax structure states like Washington and Oregon make out great while states like California are penalized in the tax code. Say a normal state makes 50% of it's tax from sales tax and 50% from income tax. You can only choose to deduct one or the other, so you get to deduct 50% of the taxes you pay. In Washington though with no income tax you get to deduct 100%. In Oregon with no sales tax you get to deduct 100%.

Obviously that is oversimplified, but illustrates the issue. The state can structure it's own tax system to maximize the deductibility of it's payments for it's citizens on the federal return...

[JohnH]

President Obama said today that the sales tax deduction will spur the purchase of 100,000 more vehicles this year. So I'm doing the math and I'm asking myself "Are there really 100,000 people in this country whose purchase decision would actually be influenced by the sales tax deduction?"

Anybody who could be induced to spend $25K on a car to get a $1K deduction which will save them $300 in tax shouldn't be given a tax BREAK - they should have to pay an extra STUPIDITY TAX instead.

This little bit of political double-speak doesn't even pass the basic smoke-and-mirrors test. Those people in Washington really do think we're a bunch of chumps, don't they?

[AZ-Tax]

Stupidity Tax? Which form # is that : )

Ok, my client will be going the "standard" route opposed to the actual route. The vehicle Bus use is 85%.

So do I Sch A deduct the full sales tax amt or only 15% of it?

[Nashville]

The full amount

By the "standard" amount, do you mean the Mileage method?

I think your mileage rate will be the same whether you deduct the sales tax or not, so

Deduct it on Sch. A so long as it exceeds state sales tax.

Another reason for choosing the sales tax deduction: you don't have to worry about a state income tax refund being added into income next year.

[Davc]

President Obama said today that the sales tax deduction will spur the purchase of 100,000 more vehicles this year. So I'm doing the math and I'm asking myself "Are there really 100,000 people in this country whose purchase decision would actually be influenced by the sales tax deduction?"

I don't have current figures, but:

In 2004, AMA reported membership totals of 244,569, which included retired and practicing physicians along with medical students, residents, and fellows. The medical school section (MSS) reported totals of 48,868 members, while the resident and fellow section (RFS) reported 24,069 members. Combined they account for almost 30% of AMA members. If every other member of the AMA was a fully qualified practicing physician then the AMA would represent 19% of America's practicing physicians (There are currently approximately 900,000 practicing physicians in America). However, MedPage Today estimates that the AMA only represents 135,300 "real, practicing physicians" as of 2005 (15.0% of the United States practicing physicians).