If you’re looking at buying a new car this year you’ll likely be able to deduct the sale tax you pay on your federal income taxes for the 2009 tax year.
IRS announced seven things you should know about this new deduction:
- State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
- Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
- Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
- This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
- Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
- 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.
- The deduction may not be taken on 2008 tax returns. Consumers who are considering buying a new car may find that this tax incentive means there has never have been a better time to buy.
If you’re unsure about how much savings this means for you, you should look up your state’s sales tax rate here: http://www.taxadmin.org/fta/rate/sales.html
Remember that depending on where you live you may also have to pay local sales tax on top of that and the local sales tax may be included in the deduction.
As an example, I used to live in Richmond, Virginia, where the sales tax is 5 percent. If you buy a $20,000 new car in Virginia, you can deduct the 5 percent sales tax you pay on that car, or $1,000.
If you live in an area near a state border where you might buy your car in one state but register it in another, make sure to check with your local DMV to see how that will affect your taxes.
April 20, 2009