Tuesday, March 31, 2009

New Car Tax Credit? (NOT)

(Thank you to Ruth for the question.)

There is a lot of confusion around the ‘New Car Tax Credit". The truth is, its not really a credit but an expanded deduction for the sales and excise taxes paid on a vehicle.
Here are the basics:

The vehicle must be a new.

It can be a car, light truck, motor home or motorcycle. There is a weight limit on the vehicle.

The vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010

You can deduct the sales and excise taxes paid on a new car for up to the first $49,500 of cost for the car.

You do not have to prepare a Schedule A Itemized Deductions to take advantage of this program. It is deductible on the first page of your 2009 tax return.

You lose the deduction if your income exceeds $135,000 if you are single and $260,000 if you file a joint tax return.

You can deduct it on your 2009 return and cannot take it on your 2008 tax return.

What is it worth? Not much. If you buy a $20,000 car and pay a 5% sales tax on it, you get to deduct $1000 from your income before you figure your taxes. For most people that translates into $250 cash in your pocket. Its better in your pocket than Uncle Sam’s but it does not seem like much of an incentive to go out and buy a new car.

There is not a lot of guidance from the IRS on this topic so things might change a little as the year passes. Here is a link to the IRS website where you will find essentially the same information as above.


No comments: