Whether you purchase a new or used motorhome, sales tax may increase your overall cost -- but it may be deductible on your next return. Not every state charges a sales tax, and for those that do, the rates charged are different in each jurisdiction, which impacts the amount of your sales tax deduction. If you don't take the write-off in the tax year you purchase the motorhome, the sales tax is no longer deductible.
Calculate Deduction Using Actual Expenses
If you have receipts for most of the purchases you made during the year, add all of the sales tax charges together. Include the sales tax you paid on the used motorhome to arrive at your actual sales tax expense for the year. When you deduct sales tax, the Internal Revenue Service allows you to figure out your deduction using actual costs or with the optional sales tax tables found in the instructions for Schedule A and to deduct the larger of the two amounts.
Determine Deduction Using Optional Tables
Figuring out your deduction using the optional sales tax tables can save you a lot of time sorting through all the receipts for your smaller purchases and may even give you a bigger write-off than your actual expenses would. The instructions for Schedule A includes the State and Local General Sales Tax Deduction Worksheet that provides step-by-step instructions on how to use the tables and which ones you should refer to. Essentially, the tables use your income, state of residence and the number of exemptions reported on your return to give you the amount you can deduct. Once you figure out the deduction, the IRS lets you increase it for the actual sales tax you pay on certain items, including motorhomes, so you can add the sales tax you paid on it to the amount obtained from the tables.
Compute Total State & Local Income Tax Payments
When itemizing, you'll have to decide whether to deduct sales taxes or your state and local income tax payments. Your income tax payments are reported on Form W-2. If you're self-employed, include the estimated tax payments made during the year instead. The IRS will let you deduct the larger of the two -- but not both. As a result, if your state and local income tax payments are more than your deductible sales taxes, your deduction will be larger if you choose the income taxes rather than the sales taxes.
Determine If Itemizing Is Beneficial
Before jumping in to Schedule A, you may want to compare the standard deduction to your total itemized deductions since you can take whichever deduction is larger. In addition to the sales tax on your motorhome and other purchases, some of the other expenses you can report on Schedule A cover mortgage interest, real estate taxes, job-related expenses, charitable donations, medical and dental costs and a wide range of miscellaneous expenses.
Prepare Schedule A
When you get to the “Taxes You Paid” section of Schedule A, be sure to mark the “General sales tax” box to indicate you're choosing to deduct sales taxes instead of state income taxes -- if that's the case. A separate entry to report just the sales tax on the motorhome isn't necessary, but the IRS does require you to retain the receipt with your records.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.