The recently passed American Recovery and Reinvestment Act of 2009 gives new car buyers a boost — an income tax deduction for state excise and sales taxes on the vehicle purchase. There are taxpayer income and vehicle price limits, but many buyers will be eligible for this benefit. According to the Internal Revenue Service (IRS), here are some of the basics:

  • The vehicle must be purchased after February 16, 2009, and before January 1, 2010.

  • The deduction is limited to the tax on up to $49,500 of the purchase price for an eligible vehicle.

  • The deduction is phased out for individuals with adjusted gross income above $125,000 and for joint filers with adjusted gross income above $250,000.

  • The deduction is available only for new cars weighing 8,500 pounds or less.

  • The tax deduction is available to taxpayers who do not itemize as well as to those who do.

An Example
For the purchase of a $30,000 vehicle with 7% state sales tax, the taxpayer would receive a $2,100 tax deduction. The actual tax savings depends on the amount of sales and excise tax paid in your state and on your tax rate. Ask your dealer about your state's tax rates.

Your tax break is in addition to any incentives or rebates offered by the dealer and manufacturer. Check out dealer specials in your area.

For more detailed information on these tax benefits, visit http://www.irs.gov/newsroom/article/0,,id=204519,00.html.

If your purchase meets certain requirements, you can get the tax deduction described above AND get cash for a "clunker," under the Car Allowance Rebate System (CARS) law, passed by Congress in June, 2009. AutoTrader.com can help you find out how to qualify for a CARS voucher with information and tools for your search.

 

 

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