My client purchased a new car for which the car was used 87% for business with my clients Sch C business. He is taking standard deduction. Can his sales tax on his car be reported on Sch A at 13% of the total sales tax, 100% of the sales tax or disallowed since he is taking standard deduction?
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From IRS Pub 946 page 12:
//////////////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, the way I interpret this is you have a choice of whether or not to include the amount paid for sales tax in the cost basis for the vehicle. Standard mileage rate would give same deduction regardless of choice, so make the choice to not include it in cost basis and take the schedule A deduction for 100%. If you do decide to do actual expenses for a future year your cost basis would have to not include the amount of sales tax. -
Sales tax versus standard IRS mileage rate
The sales tax has to be added to the basis of the business vehicle, even when using the standard IRS mileage rate.Originally posted by AZ-Tax View Post
Remember that the rate includes depreciation. If this vehicle is sold, you have to deduct the depreciation portion of all miles taken to determine the gain. And you deduct that from the basis, which includes the sales tax.Jiggers, EAComment
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