Taxpayers who itemize deductions on Schedule A of IRS Form 1040 can deduct some state and local tax payments including state income taxes and real estate taxes. In situations where the taxpayer’s resident state does not impose income taxes, tax payers may deduct sales taxes where the amount of state and local income taxes is less than sales taxes.

Example:
Marge and Nick Palmer usually itemize deductions on their joint tax return. Generally, the Palmers deduct the state income tax they pay. In 2015, though, their income fell, and so did the state income tax they paid. The Palmers also have made some large purchases, paying steep amounts of sales tax. For 2015 and future years, the Palmers can deduct the sales tax they paid instead of the state income tax they paid, if the amount of sales tax exceeded their income tax. This tax provision obviously helps people who live in a state with no income tax; other taxpayers also may benefit. A taxpayer may deduct the actual amount of sales taxes paid during the year or, alternatively, can use tables created by the IRS to determine the allowable deduction. If a taxpayer uses the tables to determine the deduction, he or she can add the tax paid on certain items (cars and boats, for example) to the amount from the IRS tables.