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The New Vehicle Sales and Excise Tax Deduction

If you purchased a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.

Here is some important information you should know about this deduction:

  1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
  2. If a vehicle costs more than $49,500, you still receive a deduction for a prorated amount of sales tax and excise taxes.
  3. You can deduct the sales tax for more than one vehicle purchased during the year.
  4. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
  5. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less.  New motor homes are not subject to the weight limit.
  6. Purchases must have occurred after Feb. 16, 2009, and before Jan. 1, 2010.
  7. Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government.  The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.
  8. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction.  Taxpayers who do not itemize can add this additional amount to the standard deduction on their 2009 tax return.
  9. The amount of the deduction is phased out 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 joint filers.

If you purchased a car in 2009 and have questions about how this deduction will affect you, please give this office a call at 888-564-5777.