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Texas: Deducting State and Local Sales Tax


 Texans may be able to deduct some sales and use tax from federal income tax.

If you itemize deductions on your federal income tax return and are a resident of Texas, you may be able to deduct sales and use tax (both state and local) paid on certain purchases.

The big-ticket 

A deduction may be claimed on certain big-ticket items purchased in 2014, such as motor vehicles and boats. In order to claim the deduction, an eligible taxpayer must either:

  • Claim the actual amount of taxes paid (receipts proving the amount of taxes paid must be kept)
  • Use the sales tax deduction calculator provided by the Internal Revenue Service

Home improvement

Texas taxpayers who either renovated existing homes or built a new home may be able to deduct from income tax any sales tax “paid on the materials incorporated into the real property improvement.” In order to claim the deduction, one of the following situations must apply:

  • The homeowner must have purchased the materials directly from the building materials supplier (and paid sales tax on the purchase); or
  • The homeowner must have worked with a contractor under a separated contract.

It should be noted that lump-sum contracts are not eligible for the deduction. In lump-sum contracts, the contractor pays sales tax on the materials and does not collect sales tax from the home owner. Texas Comptroller.

Businesses can facilitate sales tax management with automated sales tax Software-as-a-Service. Learn how it works.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.