Tax Deductions for Large Purchases
The Internal Revenue Service generally doesn't let you write off what you buy. To them, once you've earned your money and paid your taxes on it, what you do with it usually isn't a matter of concern to them, other than in a few limited instances. You can use these limited instances to wring extra tax savings out of your large purchases, though.
Sales Tax Deduction
For the 2012 and 2013 tax years, the IRS lets you choose between writing off your state income taxes or deducting your state sales taxes. If you make a very large purchase, such as a luxury car, jewelry, or an elaborate upgrade to your home, it's entirely possible that you could end up spending more in sales taxes than you do in state income taxes. Once you know that you'll be writing off sales taxes instead of state income taxes in a given year, you can save even more by stacking purchases so that you spend more money when the taxes are deductible.
Green Home Systems
The IRS will also give you tax credits against the cost of upgrading your primary home with energy efficient systems. EnergyStar-certified high-efficiency heating, ventilation and air conditioning systems all carry a flat-rate tax credit. In addition, you can also claim a credit against up to 10 percent of the cost of EnergyStar roofing materials, windows, insulation and doors. While these credits expire at the end of 2013, a second class of credits last through the end of 2016. The longer-lived credits apply to 30 percent of the cost of home energy generation systems such as solar panels, wind turbines and fuel cells. They also apply to geothermal heat pumps.
When you purchase a fully electric vehicle or a plug-in hybrid vehicle, the federal government offers a tax credit of up to $7,500. To qualify for the credit, you have to buy or finance the car new instead of leasing it. Before buying a particular car, it's wise to check with an accountant or the IRS, since the credits gradually phase out, and the amount varies depending on a given car's energy efficiency, and depending on how many of that given model have sold.
You can generally deduct up to 50 percent of your adjusted gross income in charitable contributions as long as you itemize your deductions. Charitable contributions remain as deductions even if you are subject to the alternative minimum tax. If you periodically buy items at charitable auctions or other events, anything that you spend above the item's fair market value is tax-deductible. For example, if you bid $45,000 on a $30,000 luxury vacation, the $15,000 that you pay over and above the vacations' value is tax-deductible.
- Kiplinger: The Most-Overlooked Tax Deductions
- EnergyStar.gov: Federal Tax Credits for Consumer Energy Efficiency
- FuelEconomy.gov: Federal Tax Credits for Electric Vehicles
- FuelEconomy.gov: Federal Tax Credits for Plug-In Hybrids
- Planned Giving Design Center: Tax Considerations in Charitable Auctions Bountiful Blessings or Buried Burdens?
- HR Block: The Alternative Minimum Tax
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.