Friday, May 11, 2012

Tax Break for New Car Purchases

The IRS announced today that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.
The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.
I buy a new car for $25,000 and pay 7% State Sales tax of $1,750 (25,000 x 0.07), I may be entitled to a Tax Deduction of $1,750 on my 2009 taxes next year.
The IRS is trying to promote individuals to keep buying in a down economy and while there are good incentitives out there like the First-Time Home Buyer Credit, this one is not.  If you were planning on buying a new car or need a new car then great, take the the deduction.  For most of us, we don’t NEED TO PURCHASE NEW.  Instead think about putting that money to work for you in an Interest Earning Account, where you can access it for emergencies but still earn interest.
Some other notes on the new Tax Break for New Car Purchases…
  • The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
  • Vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.
  • The special deduction is available regardless of whether a taxpayer itemizes deductions on their return.
  • The deduction may not be taken on 2008 tax returns.

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