Taxpayer asks:
Dear Taxgirl,
Congress has passed a bill allowing a tax deduction for the sales tax on the purchase of a new car. Does that differ from the current Schedule A deduction possible for additional tax for major items? Is this “much sound and fury signifying nothing?” The devil is in the details.
Best regards,
Taxgirl says:
Not quite. Believe it or not, Congress might have put some thought into this one. According to the IRS, the deduction is available regardless of whether a taxpayer itemizes deductions on their return. This is a significant difference from the requirement that you must itemize to claim the sales tax deduction (instead of your state income tax).
The deduction is available on your 2009 tax return and 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. To qualify, you have to buy the vehicle between February 16, 2009, and January 1, 2010. Phaseouts begin for individual taxpayers with modified adjusted gross income (AGI) of $125,000 and married taxpayers with modified AGI of $250,000.
IRS Commissioner Doug Shulman says, “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. This deduction enables taxpayers to buy now and get cash back later on their tax returns.”
I know I’ve been fairly critical of the stimulus package and these spending incentives. But I’m going to say that I don’t hate this one – I really did hate the initial version but this one isn’t bad. It does give you the motivation to buy but it doesn’t create an artificial incentive to spend beyond your means (I think the personal interest exemption for new car sales as previously proposed did). I wish that the deduction extended to the sales of used cars (hey, a sale is a sale) but we can’t expect Congress to think that far ahead, I guess.
So if you’re inclined to buy a new vehicle in the next year or so, consider doing it before January 1. This is a real deduction and not one of those crazy limited deductions that only applies if you spend enough money and you itemize.
And if you buy a qualifying hybrid? Sheesh, the savings!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
So I’m guessing that if you did itemize it wouldn’t make a difference from how it’s been since you’ve been able to deduct sales tax, you will still have to see what is more benificial, state withholding or sales tax? It’s not like you could take the deduction for a major purchase along with your state withholding tax deduction?
I’m guessing an above the line deduction is always better – you could probably split them. I haven’t seen anything (yet) that says you can’t take the car purchase on the front of your 1040 and the rest of your sales tax purchases on Sched A.
Is this just for American cars or any car?
Any car so long as it otherwise qualifies (must be a new car, light truck, motor home or motorcycle).
Approx $400 (tax refund) on a $25,000 car isn’t much incentive to get me out and buy a car. If I was going to buy one anyway, it would be like free money, but no way will it be an incentive.
Can this credit be split for married couples filing separately if the vehicle was purchased jointly. Example a truck purchased for $35000 with sales tax of $2100. Can each spouse file a purchase price of $17500 and sales tax of $1050? or should one spouse claim the whole amount?