Deducting state income tax or sales tax
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 Dear
Tax Talk,
I lived part of 2006 in a state with state income tax (A) and part
in a state without state income tax (B), where I can benefit from
a state sales tax deduction. I would like to deduct the state income
tax from state A for the part of the year I lived there and state
sales tax from state B from the part of the year I lived here. Is
there a provision to accommodate both?
-- David
Dear David,
The law does not aim to please all the people all the time. You
have to choose; you can't have both.
In 1986 the law that allowed individuals to claim
both a sales tax deduction and state income tax deduction was repealed.
Since then only state and local income taxes have been deductible
by individuals. Just before the presidential elections in 2004,
the sales tax deduction was reinstated to help folks that live in
states that don't have an income tax and who might vote in the elections.
The deduction expired in 2005 but was reinstated in late 2006 when
people were done voting in the midterm elections.
You cannot claim both income taxes and sales tax; you have to choose and obviously you should use the greater one. Unless you moved to one of the five states without sales tax, your sales tax deduction might be greater. Publication 600 provides the following guidelines for calculating your sales tax deduction when you lived in more than one state in a tax year:
If you lived in more than one state during 2006, look up the table amount for each state using the above rules. If there is no table for your state, the table amount is considered to be zero. Multiply the table amount for each state you lived in by a fraction. The numerator of the fraction is the number of days you lived in the state during 2006 and the denominator is the total number of days in the year (365). Enter the total of the prorated table amounts for each state on your return.
If you look at Schedule
A for 2006, you'll notice that there is no line for sales tax
but only state and local income taxes (line 5). That's because the
law was changed too late for the IRS to revise the form. If you're
claiming the sales tax deduction, enter the amount on line 5 and
write the letters "ST" on the dotted line to the left.
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