Under current law, 2013 is the last year that individual taxpayers will be allowed to deduct sales and use tax on their individual tax return as an itemized deduction. Sales taxes were allowed to be deducted until tax reform was initiated in 1986. The deduction was eliminated for many years (although state income taxes continue their deductibility). About 10 years ago, Congress reinstated the full deduction for sales and use tax, however, you had to make an election to deduct the greater of sales tax or state income taxes. You could not deduct both.
This provision has been extended several times over the last few years, however, with the constant talk about tax reform and the continued dysfunction of Congress, who knows if it will be extended this year. Therefore, if you plan on making large personal purchase such as a car, jewelry or other larger ticket items, you may want to consider purchasing before year-end. You are allowed to deduct in full the sales tax on larger items plus a table amount that the IRS provides.
For example, assume you live in Iowa and your state income taxes for 2013 ends up being $4,500. You purchase an automobile and some jewelry with sales tax of $4,500. This amount plus the table amount yields a total sales tax deduction of $6,000. You are allowed to deduct $6,000 on your tax return. You lose the benefit of the $4,500 state income tax deduction. This benefit is usually for taxpayers in states with no income taxes such as Texas and Washington, etc.
If you may be subject to the alternative minimum tax (AMT) , you must take care in assuming you will get a benefit from sales or state income taxes. AMT does not allow for this deduction, so in many cases, a taxpayer with a large sales or state income tax deduction will ultimately see no benefit from the deduction due to AMT.