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Bankrate's 2010 Tax Guide
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Deducting sales tax on a new car

More filing paperwork

Finally, to claim this credit you'll have to fill out a bit more tax paperwork.

Taxpayers who claim the standard deduction will have to complete the new Schedule L. It can be filed with either the long Form 1040 or the shorter Form 1040A. In either case, you'll need to fill it out, check the appropriate box on your tax return (line 40b on the 1040; 24b on the 1040A) and send it along with your return. This will let the IRS know why your standard deduction amount is larger than the usual figure.

If you itemize, you'll still use Schedule A. As in previous filing years, you'll decide whether to claim income taxes or your state's (and local jurisdiction's) general sales taxes. If you opt to deduct sales taxes, check the box on line 5b.

Again as in prior years, you can add the sales tax from your auto purchase to the general sales tax amount that goes on line 5. If you use the standard sales tax tables for your state that are part of the Schedule A instructions. You'll account for your auto sales tax on the work sheet in the instructions.

In this case, you can deduct the sales tax on any vehicle purchase, not just on a new one. You're not limited to road vehicles. Sales tax paid on boats, airplanes, off-road vehicles and even mobile and prefabricated homes can be added here. And you don't have to worry about a limit on your vehicle price or your income.

If, however, you opt to claim state income taxes instead, you still get to write off your new vehicle's sales tax amount. In this case, you'll check box 5a for income tax, then enter your new vehicle's sales tax amount on line 7. You also need to fill out the work sheet on page two of the newly redesigned Schedule A.

Keep in mind, though, that when you claim income taxes and sales tax on a vehicle on your Schedule A, that vehicle must meet all the special rules and limitations -- such as the vehicle being new, not costing too much and your income -- before you can count the tax.

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