If you’re planning to buy a new car this year, you might also be eligible for a shiny new tax break.
Part of a recently enacted economic-stimulus law allows many taxpayers who buy a new “passenger vehicle” this year to deduct the state and local sales and excise taxes on their 2009 federal income-tax returns, to be filed next year, the Internal Revenue Service says.
Car buyers are allowed to take this special new deduction whether or not they itemize their deductions. That’s an important point since about two-thirds of all returns claim the standard deduction each year, instead of itemizing. The deduction applies to vehicles manufactured both here and abroad.
But as with so many tax laws, there is some important fine print that needs to be mastered — and not everyone is eligible for the deduction.
For example, this new deduction is limited to taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle, the IRS says.
Also, the amount of the deduction gradually disappears — or “phases out,” as tax lawyers like to say — 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 married couples filing jointly.
In addition, the vehicle must be purchased after Feb. 16 this year and before the end of this year.
All those qualifications will rule out many buyers. But if you’re eligible, the savings can be significant.
This new deduction may give people thinking about buying a new car “a little more drive to make their purchase this year,” IRS Commissioner Doug Shulman says.
A spokesman for the National Automobile Dealers Association struck a similar tone, saying the new law “will help jump-start auto sales.”
But don’t try claiming it on your return for 2008, which is due April 15. It isn’t available until you file next year for 2009.
Source: wsj.com