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Not all tax on things you buy is deductible

By HELEN HUNTLEY
Published January 30, 2005

The new sales tax deduction for federal income tax returns is prompting some creative thinking by Florida taxpayers. The basic line of reasoning goes like this: I paid for something and it had a tax, so it must have been a sales tax and therefore deductible.

Here are a few samples from my electronic mailbox:

"My gas receipts do not show any sales tax nor is there any sign at the pump. Does gasoline have a sales tax?"

"My Verizon bill lists federal excise tax, local communications services tax, state gross receipts tax, county 911 funding fee. . . . Which, if any, qualify?"

Some of the confusion stems from an IRS reference to the deductibility of sales taxes and "compensating use taxes." Contrary to some people's assumptions, a use tax is not a tax paid on anything you use.

Under Florida law, a use tax is a sales tax substitute on certain goods for which no sales taxes were paid. Most commonly, it is the tax owed on an item purchased out of state and brought or shipped into Florida within six months of purchase. If you order something from an out-of-state company that does not charge sales tax, you are supposed to fill out a state form and pay a use tax. Most Floridians don't do that unless the state sends them a bill, but if you do happen to pay a use tax instead of a sales tax, the IRS says you can deduct it.

There are other deductible taxes. Real estate taxes are deductible if you itemize, and so are personal property taxes based on the value of something you own. Florida's intangibles tax qualifies, but vehicle registration fees do not since they are not based on the value of the car. State income tax is deductible, but you can't deduct both sales tax and income tax on the same return.

Instead of using actual receipts for sales taxes, you can use an IRS table to determine your deduction. The table for Florida can be found on the Times' Web site (www.sptimes.com/taxes)

My husband and I moved permanently to Florida in September from Ohio. May we deduct all sales tax from items we purchased in both Ohio and Florida, or only those items purchased in Florida?

You can deduct them all. Deduct the actual sales taxes paid or use the sales tax tables for both Ohio and Florida, prorating the amounts based on the number of days you lived in each state. If you deduct sales tax, you cannot deduct any income taxes you paid Ohio.

Will I have to pay a capital gains tax on the house I own in Florida? It has been deeded to my name for more than two years. I sold the home I had in Pennsylvania two years ago. I do not homestead here in Florida and I still spend summers in a cottage I own in Pennsylvania. Is there anything I can do to escape paying capital gains tax?

To exclude up to $250,000 in capital gains ($500,000 if you are married), you must have owned and occupied a house as your principal residence for at least two of the past five years. In addition, two years must have passed since the sale of the other house for which you used the exclusion.

I'm not sure what you mean by "I do not homestead here in Florida." If you live in this house for most of the year and just spend summers in Pennsylvania, you should be able to claim this house as your principal residence even if you have neglected to file for homestead exemption. Once you have spent 24 months in the house, not including those summer months away, you should qualify for the exclusion. But if "I do not homestead here in Florida" means you have some other home where you live most of the year, then that would be your principal residence and you would not qualify for the exclusion on your Florida home.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified August 31, 2005, 11:07:07]