NEW VEHICLE SALES TAX DEDUCTION

The IRS just released a tax reminder for people that purchased a new vehicle between February 16, 2009 and December 31, 2009. I thought it might be of interest.

Eight Facts about the New Vehicle Sales and Excise Tax Deduction

If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.

Here are eight important facts the Internal Revenue Service wants you to know about this deduction:

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.

2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.

3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.

4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

5. Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.

6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

7. 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.

8. Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.

For more information about these rules and other eligibility requirements visit www.IRS.gov/recovery.

TAX DEDUCTION FOR VEHICLES

Where can I get information on the sales tax deduction on vehicles? I purchased a car and heard that I get a tax write off.

Igor

Igor, you have come to the right place. I can give you that information.Taxpayers who buy new motor vehicles this year may be entitled to a special tax deduction for the sales or excise taxes on those purchases when they file their 2009 federal tax returns next year. I say "may" because if your income is too high the law phases out the deduction. See item 8 below.

Here are the facts.

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.

2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.

3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. Motor homes are not subject to the weight limit.

4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

5. Taxpayers who purchase new motor vehicles in states that do not have state sales taxes may be entitled to deduct other fees or taxes assessed on the purchase of those vehicles. Fees or taxes that qualify must be based on the vehicles’ sales price or as a per unit fee. These states include Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

6. Taxpayers who purchase qualified motor vehicles may claim the deduction when they file their 2009 tax return in 2010.

7. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction.Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

8. 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.

TAX BREAKS ON ELECTRIC VEHICLES

There are tax breaks available for taxpayers who purchase qualified plug-in electric vehicles. Check out the article on the IRS website at:

http://www.irs.gov/newsroom/article/0,,id=207051,00.html.

TWO MORE QUESTIONS ON NEW VEHICLE PURCHASES

Larry, thanks for all the information. I purchased a new vehicle for my business. Do I still get the new deduction that you talked about?

Terry

No. The new deduction is just for personal vehicles. You are already getting the deduction on your business return.

Larry Kopsa CPA


I purchased a new car in March. I am estimating that it will be 60% business and 40% personal. Can I still get the new deduction?

Cam

There has been no guidance from the IRS so I cannot be sure, but my best guess is that you would get to take 40% of the taxes as a deduction. I will watch for more guidance from the IRS and let you know.

Larry Kopsa CPA