How to deduct state and local sales tax in Lacerte

Taxpayers have the option of deducting state and local sales taxes, instead of state and local income taxes, as an itemized deduction on Line 5 of Schedule A.

Starting in Tax Year 2025

The overall limit on the deduction for state and local income, sales and property taxes has increased to $40,000 ($20,000 if MFS) and is reduced by your modified adjusted gross income if more then $500,000 ($250,000 if MFS) but will not reduce below $10,000 ($5,000 if MFS). Review the Schedule A line 5e to see the results.

To override the use of State and Local Income Tax vs Sales and Use Tax:

Lacerte automatically optimizes between the greater of sales tax or income tax. To override the optimization:

1. Go to Screen 25, Itemized Deductions
2. Scroll to the Taxes section.
3. In the input box labeled 1 = force income tax, 2 = force sales tax, blank = optimize enter 1, 2, or leave blank.

How to see how much State and Local Sales Taxes are allowed on tax year 2025 return?

1. To see the WKS for the comparison and the phase out calculation go to the Settings menu, then Options.
2. Select the Tax Return tab.
3. Find Sch A Optional Stmt: Medical, Mortgage, Contributions etc. and make sure it set to With worksheets.
4. Go to the Forms tab.
5. Select the Sch A.
6. On line 5 select the WKS link to see the comparison between taxes paid or table amount. The amount on line 5 of the worksheet will flow to line 5a of the Schedule A.
7. Line 5e will show the amount after applying the income limitations and phaseout rules.
   • Review the Schedule A, Line 5e State and local tax deduction worksheet to see the calculation.

To override the Sales and Use Tax:

To calculate the state and local sales tax deduction, a taxpayer can use actual expenses or the Optional State Sales Tax Tables.

Lacerte automatically optimizes between state and local sales taxes paid, and taxes calculated using the table method. To override the optimization:

1. Go to Screen 25, Itemized Deductions.
2. Scroll to the Sales and Use Taxes section.
3. In the input box labeled 1 = force actual, 2 = force tables, blank = optimize enter either 1, 2, or leave blank.

For more information on calculating sales tax deduction using the Sales Tax Tables, refer to the IRS instructions for Itemized Deductions and the IRS Sales Tax Deduction Calculator.