Hey, I ran accross this info from pennlive blog: Obama signed a law, "The American Recovery and Reinvestment Act of 2009" The law includes a new consumer tax deduction for State and local sales and excise taxes paid to purchase a motor vehicle during 2009. Provides consumers a new tax deduction on their 2009 Federal income taxes for "qualified motor vehicle taxes." Qualified motor vehicle taxes include any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle. Qualified motor vehicles include passenger automobiles or light trucks with a weight rating of not more than 8,500 pounds. Applies to NEW vehicles only. Deduction allowed for non-itemizers. Limitation on Vehicle Price: limited to the tax on up to $49,500 of the purchase price of a qualified motor vehicle. Income Limitation: Phased out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 in the case of a joint return). Effective Date: Purchases on or after February 17, 2009, and before January 1, 2010. Does this apply to the Prius 08 and 09 models? Does this depend on State? Thanks, Spidey
I find that quite funny, since you can already deduct sales taxes paid on cars, in fact you can deduct all state paid sales tax. If you paid more in state and local sales tax than you paid in state income taxes, you can choose to deduct that instead. Now if the new law passed means you can deduct that in addition to state income tax, so much the better.
It also puts this 'above the line', so that many of us who cannot itemize, taking the standard deduction instead, can still use this deduction.
I think that's the biggie. For those of us with few expenses, the standard deduction wipes out many of the usual "tax deductible" benefits.
Audio: New Vehicle Tax Deduction The American Recovery and Reinvestment Act of 2009 provides a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Purchases before Feb. 17, 2009, are not eligible for this special deduction. The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000. Taxpayers who make qualifying new vehicle purchase this year can estimate their deduction with the help of IRS Publication 919, "How Do I Adjust My Withholding?" Worksheet 10, lines 10a to 10k take into account purchases above the $49,500 limit, as well as the income phase-outs. News release 2009-30 has more details. Also see Seven Facts about the New Sales Tax Deduction. Return to Tax Provisions in the American Recovery and Reinvestment Act of 2009
Not every state has an income tax, so that is why sales tax was added as an alternative for itemizing deductions, but you have to take one or the other, whichever is higher. Typically, unless you've made a large purchase or a lot of medium purchases, the income tax of a particular state is higher if they have an income tax. The new law allows everyone to claim the sales tax deduction on a new vehicle regardless of whether they are claiming the income tax or sales tax deduction on their itemized return. It also allows those who do not itemize to deduct the sales tax which they would otherwise miss out on. Of course, this only applies to vehicles purchased this year. They were considering allowing the interest on a car loan to be deductible as well as the sales tax as an extra incentive for people to buy cars this year, but the Senate turned it down when they cut the size of the recovery act because it was getting too expensive.
Living in NY state, it would be hard for my cumulative sales tax to be more than my state taxes We were pleasantly surprised to discover as we signed the papers that we could deduct the sales tax on our new Prius this year. At 8%, that's not small potatoes! Our Prius is the gift that keeps on giving.
