The Sales Tax Deduction for Texans: How It Works and What the IRS Checks

Federal law lets you deduct state and local taxes if you itemize. For most Americans, the biggest one is state income tax. Texas does not have one. So Congress gave Texans, and residents of the other no-income-tax states, a substitute: you can elect to deduct state and local general sales taxes instead.

It is a modest deduction for most households. It can be a large one in a year you buy a truck or a boat. And it is an easy deduction to get wrong in ways that draw a letter.

The election under IRC 164(b)(5)

IRC 164(b)(5)(A) lets an individual elect, each year, to deduct state and local general sales taxes in place of state and local income taxes. You cannot deduct both. For a Texan with no state income tax, the choice is easy, but it is still a choice you make on Schedule A by checking the box for general sales taxes.

A general sales tax under the statute is a tax imposed at one rate on retail sales of a broad range of items. Lower rates on food, clothing, medical supplies, and motor vehicles do not disqualify a tax. Texas's state sales and use tax, plus the local sales taxes cities, counties, and transit authorities add on top, fit that definition. Use tax you paid on out-of-state purchases counts too, under 164(b)(5)(E).

Actual receipts or the IRS tables

You have two ways to figure the deduction. The first is actual expenses: add up the sales tax on every receipt for the year. Almost nobody does this because almost nobody keeps every receipt.

The second is the optional sales tax table under IRC 164(b)(5)(H). The IRS publishes tables, and an online Sales Tax Deduction Calculator, in the Schedule A instructions. The table amount is based on your income, family size, state, and the local sales tax rate where you live. Texans in cities with a full local sales tax get a larger table amount than those in areas with lower local rates.

Two details matter for the table method. The income figure is not just adjusted gross income; the Schedule A instructions have you add certain nontaxable income, such as tax-exempt interest and the nontaxable part of Social Security benefits. And if you moved during the year, you prorate the table amounts based on the days you lived in each place.

Major purchases: the big add-on

Here is where the deduction gets interesting. Under 164(b)(5)(H)(i)(I), even if you use the table, you can add the actual sales tax you paid on certain big-ticket items. The Schedule A instructions list motor vehicles, including cars, trucks, motorcycles, motor homes, and off-road vehicles; aircraft and boats; homes, including mobile and prefabricated homes, and materials for building a home or a substantial addition or major renovation, when the sales tax was imposed at the general rate.

For a Texas household that buys a vehicle, the add-on is often the bulk of the deduction. Keep the purchase contract that shows the tax paid. If the motor vehicle tax rate is higher than the general sales tax rate, the statute only allows the general rate portion.

The SALT cap in 2025 and 2026

Your sales tax deduction does not stand alone. IRC 164(b)(6) caps the total deduction for state and local income or sales taxes plus real and personal property taxes. Through 2024 the cap was $10,000. Legislation enacted in July 2025 raised it.

Under IRC 164(b)(7), the cap is $40,000 for tax years beginning in 2025 and $40,400 for 2026, then rises one percent a year through 2029 before dropping back to $10,000 starting in 2030. Married individuals filing separately get half. The cap is reduced by 30 percent of modified adjusted gross income above a threshold, $500,000 for 2025 and $505,000 for 2026 (half for married filing separately), but the reduction cannot take the cap below $10,000.

For many Texans, the cap now matters less than it did. A household with high Texas property taxes and a vehicle purchase can often deduct both in full under the higher cap. My guide to the Texas property tax deduction covers the property tax side.

Itemizing still has to beat the standard deduction

None of this helps unless your total itemized deductions exceed your standard deduction. The standard deduction is adjusted for inflation every year and was increased by legislation in 2025, so check the current year's figure in the Form 1040 instructions. Many Texas renters without mortgages take the standard deduction and never think about sales tax at all.

What the IRS checks in an exam

Examiners do not usually question the table amount itself, as long as the inputs are right. They question three things. First, the income figure used for the table, which should include the nontaxable items the instructions list. Second, the local rate used, which should match where you actually lived. Third, and most often, the major purchase add-on.

For the add-on, the examiner wants proof that you bought the item, that you paid the tax, and that the item qualifies. A dealer's purchase agreement or title application showing sales tax paid usually answers the question. Business vehicles are a separate issue: tax on a vehicle used in a business is generally part of its cost, recovered through depreciation, not a Schedule A deduction.

Keep the receipt for anything over a few thousand dollars, keep a note of where you lived and when, and you have most of what an exam needs.

Texas trades a state income tax for higher sales and property taxes. The federal return lets you claim some of that back. Claim it correctly and it is one of the quietest lines on your return. If the IRS has questioned your itemized deductions, or you are dealing with a bigger audit, let's talk: 813-229-7100.