Luxury tax items in the United States aren’t governed by any single tax. The federal government repealed its broad luxury tax in the 1990s, so what remains is a mix of federal excise taxes on specific goods (most notably fuel-inefficient cars and heavy trucks), state and local surcharges on expensive homes and vehicles, tiered sales taxes on jewelry and high-end apparel in a few states, and customs duties on luxury goods brought in from abroad. Each one attaches to a particular category and kicks in only when the purchase crosses a defined price or specification.
Federal Excise Taxes That Act Like Luxury Taxes
The federal tax code no longer uses the label “luxury tax” for any current levy. What it does impose are excise taxes on specific goods and activities, and a few of them land squarely on high-end purchases. The businesses that owe them report and pay quarterly on IRS Form 720.1Internal Revenue Service. About Form 720, Quarterly Federal Excise Tax Return
The federal excise taxes most relevant to luxury spending:
- Gas guzzler tax: $1,000 to $7,700 per vehicle on new cars that get less than 22.5 miles per gallon, paid by the manufacturer.2Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax
- Heavy truck and trailer tax: 12% of the retail sale price on truck chassis, truck bodies, and highway tractors.3Office of the Law Revision Counsel. 26 US Code 4051 – Imposition of Tax on Heavy Trucks and Trailers
- Indoor tanning services tax: 10% of the amount paid, enacted under the Affordable Care Act.4Internal Revenue Service. Excise Tax on Indoor Tanning Services Frequently Asked Questions
- Stock repurchase excise tax: 1% of the fair market value of stock a corporation buys back, created by the Inflation Reduction Act of 2022.5Office of the Law Revision Counsel. 26 USC 4501 – Repurchase of Corporate Stock
The gas guzzler and heavy truck taxes are the ones a consumer will feel, and they get built into the sticker price rather than shown as a line item.
The Gas Guzzler Tax on Fuel-Inefficient Cars
The gas guzzler tax is the closest thing the federal government has to a luxury tax on cars, and the rates scale sharply with how inefficient the vehicle is. Trucks, minivans, and SUVs are exempt because the tax was designed in 1978 when those vehicles were rarely used for personal transportation. The tax applies to new passenger cars sold by the manufacturer when the model’s fuel economy falls below 22.5 miles per gallon.
- 21.5 to 22.4 mpg: $1,000
- 20.5 to 21.4 mpg: $1,300
- 19.5 to 20.4 mpg: $1,700
- 18.5 to 19.4 mpg: $2,100
- 17.5 to 18.4 mpg: $2,600
- 16.5 to 17.4 mpg: $3,000
- 15.5 to 16.4 mpg: $3,700
- 14.5 to 15.4 mpg: $4,500
- 13.5 to 14.4 mpg: $5,400
- 12.5 to 13.4 mpg: $6,400
- Below 12.5 mpg: $7,700
These rates are set by statute and have not been adjusted for inflation since 1986.2Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax In practice, the vehicles caught by this tax tend to be high-performance sports cars and luxury models with large engines, which is why it functions as a de facto luxury car tax even though the statute frames it as an environmental measure.
State and Local Taxes on Expensive Homes, Cars, and Goods
With no broad federal luxury tax in place, state and local governments have filled the gap. The details vary, but the design is consistent: once a purchase crosses a high price threshold, either a higher rate or an additional surcharge attaches.
Mansion Taxes on High-Value Real Estate
A number of states and municipalities impose supplemental transfer taxes on residential property sold above a set price. Thresholds vary. Some jurisdictions begin taxing at $500,000, others at $1 million or higher. Rates run from modest surcharges of a fraction of a percent to progressive structures that can exceed 3% on the most expensive properties. The buyer typically pays the tax at closing. Most thresholds are not indexed to inflation, so as home prices rise, more sales get pulled into the tax.
Vehicle Surcharges and Value-Based Registration Fees
Several states charge higher taxes or fees on expensive vehicles. Some apply a higher sales tax rate on cars sold above a certain price. Others impose a flat surcharge, and still others calculate annual registration as a percentage of the vehicle’s market value, so an owner of a $150,000 car pays substantially more each year than the owner of a $20,000 car. The value-based fees differ from a flat registration charge because the amount scales with purchase price and drops as the vehicle ages.
Tiered Sales Tax on Jewelry, Clothing, and Watches
A few states apply a higher sales tax rate to specific categories of goods once the price crosses a threshold. Jewelry, high-end clothing, designer handbags, and watches are common targets. A $300 jacket might carry the standard rate; a $1,500 jacket in the same store might carry a higher one. Thresholds and rates vary by jurisdiction, so identical items can produce very different tax bills in different states.
Customs Duties on Imported Luxury Goods
Buying luxury items abroad and bringing them home triggers a separate layer of tax. Returning U.S. residents get a personal duty-free exemption of $800 on goods brought back from most countries, or $1,600 from certain U.S. territories.6eCFR. Part 148 – Personal Declarations and Exemptions Anything above the exemption is subject to duty at rates set by product type and country of origin.
Watches and jewelry draw particular scrutiny. Duty rates on watches with precious metal cases can run around 4% to 5% on the case and band, plus a per-piece charge. Watches from certain countries without normal trade relations can face rates reaching 35%.7Harmonized Tariff Schedule of the United States Revision 4 (2026). Chapter 91 – Clocks and Watches and Parts Thereof Duties can compound with state use tax if the seller didn’t collect sales tax at the point of sale. Many states require residents to pay use tax on items purchased out of state or abroad and used domestically.
How the Tax Amount Is Calculated
Two calculation methods dominate luxury tax design, and knowing which one applies matters for what you’ll actually owe.
The first is threshold-excess. You’re taxed only on the amount above a set dollar figure. If the threshold on a category is $100,000 and you spend $120,000, only $20,000 is taxable. Barely crossing the threshold costs very little.
The second is the cliff method. Crossing the threshold subjects the entire purchase price to the higher rate. Several state mansion taxes work this way. A home selling for $999,000 might owe no surcharge, while one selling for $1,000,000 owes the surcharge on the full million. Asking prices in these markets often cluster just below known thresholds for exactly that reason.
Some states use a hybrid with progressive brackets. The rate climbs in steps as the price rises into higher tiers, similar to income tax brackets. This softens the cliff but adds calculation work, especially in real estate deals where the buyer needs to total the tax across brackets before making an offer.
Why There’s No Broad Federal Luxury Tax Anymore
Congress tried a broad federal luxury tax under the Omnibus Budget Reconciliation Act of 1990. A 10% surcharge applied to five categories, but only on the portion of the price above a threshold: boats above $100,000, aircraft above $250,000, cars above $30,000, jewelry above $10,000, and furs above $10,000.8GAO (General Accounting Office). Tax Policy and Administration – Luxury Excise Tax Issues and Estimated Effects
Wealthy buyers delayed purchases, bought abroad, or bought used goods, which were exempt. Yacht sales collapsed and boat builders laid off workers. The IRS collected only about $7.3 million from the boat category in fiscal year 1991. Automobiles produced roughly $152 million, about 90% of the total, because cars are harder to buy overseas or defer.8GAO (General Accounting Office). Tax Policy and Administration – Luxury Excise Tax Issues and Estimated Effects Congress repealed the tax on boats, aircraft, jewelry, and furs in 1993.9Congress.gov. HR 373 – 103rd Congress (1993-1994) The car portion was phased out and expired at the end of 2002. No broad federal luxury tax has been attempted since.
Deducting Luxury Taxes on Your Federal Return
What you can deduct depends on the type of tax. State and local property taxes, including value-based vehicle registration fees that qualify as personal property taxes, are deductible as an itemized deduction on Schedule A. State and local sales taxes, including higher rates on luxury goods, also qualify. All state and local tax deductions are subject to the SALT cap. For 2026, the cap was raised to $40,400 for most filers, up from the $10,000 limit that applied from 2018 through 2025. The expanded cap phases down for filers with modified adjusted gross income above $505,000.
Real estate transfer taxes and mansion taxes are not deductible on Schedule A. They can be added to the cost basis of the property, which reduces capital gains tax when you sell.
Federal excise taxes like the gas guzzler tax generally aren’t deductible on personal purchases. If a vehicle is used for business, the tax becomes part of the depreciable cost of the asset. The same treatment applies to heavy truck excise taxes for vehicles used commercially.