Money is tight these days, but if you are in the market for a new vehicle, now is the time to buy. Apart from the great discounts available at dealerships with General Motors and Chrysler vehicles in the lot, there could be a nice tax write-off, too. Among the various clauses of the American Recovery and Reinvestment Act of 2009 is a welcome boost for taxpayers: a new federal income tax deduction for state excise and sales taxes on new vehicle purchases. There are limits based on taxpayer income and vehicle prices, but many buyers will qualify for this tax break. Your tax professional can provide full details, but here are the key aspects of the new sales tax deduction.
- The vehicle must be purchased (not leased) after February 16, 2009, and before January 2010.
- To qualify, the purchase must be a new (not used) passenger car or light truck with a gross vehicle weight rating of 8,500 pounds or less.
- New motorcycles that weigh 8,500 pounds or less are also eligible for the tax break. New motor homes are eligible, too.
- The tax break is limited to the tax on $45,900 of the purchase price of an eligible vehicle.
- The actual tax savings depends on the sales and excise tax rates in your state and on your tax rate.
- The new tax deduction is phased out (or eliminated) based on adjusted gross income of the buyer. The phase-out range for married joint-filers is $250,000 to $260,000; for single or married taxpayers who file separately, the phase-out range is $125,000 to $135,000.
- The deduction is available to taxpayers whether they itemize their returns or not. It is also available to taxpayers who are in the alternative minimum tax bracket.
You could be eligible for further financial incentives under the Car Allowance Rebate System (CARS) law, which was passed by Congress in June 2009. The CARS law (sometimes referred to as Cash for Clunkers) is designed to help consumers purchase a new, more fuel-efficient car or truck when they trade in a less-fuel efficient car or truck.
The Department of Transportation has a website devoted to the CARS law (www.cars.gov) that provides detailed information and a list of commonly asked questions. In brief, the rebate system applies under the following conditions:
- The trade-in must be 25 years old or less.
- The rebate can only be applied to the purchase or lease of a new vehicle at participating dealers.
- The old vehicle may be worth up to $4,500 toward the purchase or lease of a new vehicle.
- The trade-in vehicle must have been continuously registered and insured for the full year prior to the transaction.
- Participating dealers will provide consumers with a list of vehicles where the rebate may be applied.
Many dealers are sweetening the rebate deal with additional factory incentives. If you want to take advantage this program or the vehicle tax deduction, bear in mind that Cash for Clunkers is slated to end in November or when the funding is gone (whichever happens first), and the new vehicle tax break is available to qualified buyers only until year-end.