Even if you don’t agree with the bailout of American automakers, there are some awesome tax breaks to help keep them propped up. A friend of mine recently purchased a 2009 Saturn for 0% interest on a 72 month loan and only $500 down payment. The taxes were rolled into the loan but are still allowed in this new tax break. Great deals and great tax breaks; what more can you ask for?
There was some earlier speculation during the legislative negotiation that the interest paid on a new vehicle purchase might be deductible but that did not make it into the final bill. 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.
“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”
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. Some of you may wonder, “what does this mean for my bottom line?” or “how will this change my refund?” This tax break is a deduction against your taxable income and not a direct tax credit. Here’s an example: my local sales tax rate on vehicle purchases is 8.75% - the deduction on a $30,000 vehicle will be approximately $2625. If you are in the 25% tax bracket, this can equate to approximately $650 in actual tax savings. Not too shabby!
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 vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction. The best news of all is that the special deduction is available regardless of whether a taxpayer itemizes deductions on their return.
Oh, and PS. if you prefer imports over American cars, the tax break is available on new purchases of both foreign and domestic cars. And, you can still take the deduction if the purchase price exceeds $49,500 – but only on sales tax paid up to the $49,500 limit.