Besides the new car smell, your car probably also came with a hefty sales tax bill. Luckily for you, the Internal Revenue Service allows a deduction for state and local sales taxes paid on any purchases, including a new car. The downside is that you can't deduct your state and local income taxes and must give up the standard deduction. In addition, keep your receipts so that you'll be able to prove the payments if the IRS questions your return.
Add the new car sales tax paid to any other state and local sales taxes you paid during the year to figure your sales tax deduction. For example, if you paid $700 in sales taxes on your car and $1,100 in sales taxes on other purchases during the year, your total deduction is $1,800.
Enter your total sales tax deduction on line 5 of Schedule A.
Check Box 5b on Schedule A to indicate you're using the state and local sales tax deduction rather than the state and local income tax deduction. If you were taking the state and local income tax deduction, you'd check Box 5a.
Add your sales tax deduction to your other deductible taxes and report the total on Line 9 of Schedule A.
Add your deductible taxes to your other itemized deduction and report the total on line 29 of Schedule A and line 40 of Form 1040. This amount reduces your taxable income for the year.
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