The good news under ARRA (American Recovery and Reinvestment Act of 2009): if you buy a qualifying new vehicle after February 16, 2009, and before January 1, 2010, you can deduct state or local sales or excise taxes paid on the purchase. The deduction is available whether or not you itemize.
The bad news under ARRA: prior to June 10, if you live in Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon, you were out of luck in the federal tax break department since those states don’t charge sales tax.
The luck of residents in sales tax-free states seems to be changing. The IRS has announced that taxpayers who buy a qualifying new car in those states may deduct other fees or taxes imposed by the state or local government so long as they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per-unit fee. According to the IRS, that was Congress’ plan all along… they just, er, didn’t get around to putting it in the bill.
IRS Commish Doug Shulman says:
This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax. This means that more people can take advantage of this deduction when they file their tax returns next year.
As a reminder, the deduction is limited to fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle. (Motor home, Chris! Are you reading?) The deduction is subject to phase-outs for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individuals and between $250,000 and $260,000 for married couples.
Of course, it makes sense that it would take the IRS four months to figure out what Congress really meant to say. The announcement was made on June 10 (yesterday). And it has nothing to do with the government now owning a piece of Chrysler…
Hm, I wonder which cars would qualify.
Using tax dollars to subsidize car purchases is a bad idea. I thought all the Democrats wanted High Speed Rail? Won’t helping people buy cars make it hard to get people into trains? This is just another example of wasteful spending of borrowed future tax revenues.
If I was to buy a new car this year, Ford would be the only domestic brand I would look at. I grew up in a GM household and owned many GM’s but after watching them beg at Obama’s feet for a bailout, I doubt that I will ever buy one again. That goes double for Chrysler.
I think it would be funny if the majority of cars bought and claimed on taxes were Honda’s and Toyota’s. That would be justice for bad tax policy. This crappy policy is worse than the new buy your first home tax credit. If you bought a your first house or a new car 2 years ago or later, you have got to feel like you have gotten the shaft. It is “luck of the draw” tax policy. If you qualify and act, you get a windfall. If you don’t qualify or missed the qualification window, you are SOL.