You May Qualify for a Special New Vehicle Tax Deduction for State and Local Sales and Excise Taxes

By Sandor Lenner,CPA

During 2009, the government and car dealers took steps to stimulate the economy, with a focus on new vehicle sales. For those individuals that purchased new autos and vehicles, you should be aware that purchasing a new car, light truck, motor home or motorcycle that had a gross vehicle weight rating of less than 8,500 pounds, and paying state and local sales and excise taxes, may qualify you for a special deduction when filing your 2009 tax returns.

How Does this New Sales Tax Deduction Benefit You?- This tax deduction can be used whether or not you itemize other deductions on your tax return.

Vehicle purchases made from February 17,2009 to December 31, 2009, may qualify for this deduction under the American Recovery & Reinvestment Act of 2009 (ARRA). A qualified motor vehicle is a passenger automobile, motorcycle or light truck, whose original use begins with that purchaser and has a gross vehicle weight rating of 8,500 pounds or less.

The deduction is limited to the sales and excise taxes and similar fees paid not to exceed $49,500 of the purchase price of a new vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI)that are between $250,000 and $260,000 and other taxpayers with MAGI that are between $125,000 and $135,000. If you have higher incomes then you will not qualify.

The good news is that this tax deduction is available to people that itemize deductions and those individuals that do not itemize. Furthermore, to use this special deduction, your must either file Form 1040A or Form 1040. It is unavailable to taxpayers who use Form 1040EZ.

Where is this Deduction Reflected in the 1040 Tax Return?- If you are unable to itemize your deductions, then add the sales tax paid for the vehicle to the standard deduction in the special area on your 2009 tax return. If you regularly use From 1040EZ then you should Tax Tip consider using and filing Form 1040 or Form 1040A instead of Form 1040EZ to obtain the benefit of this deduction.

Tax laws are complex, change constantly and each situation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult competent professionals in this area. - 29856

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