Tax Savings Newsletter -

Vehicle Sales Tax Deduction

For 2009 only, individuals can deduct sales tax paid on the purchase of a new vehicle. The deduction is available for cars, trucks, motorcycles, motor homes and recreational vehicles. The vehicles must be purchased after February 16, 2009, and before January 1, 2010, to qualify for the deduction.

Claiming the Vehicle Sales Tax Deduction

People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction 1. Itemizers will take this deduction, in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes in lieu of state and local income taxes, then the taxes paid on the car will be included along with other sales taxes you paid.

Qualifying for the Vehicle Sales Tax Deduction

The vehicle must be new (not used). The vehicle must be an automobile, light truck, or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds. Motor homes and recreation vehicles also qualify (no gross vehicle weight restrictions for motor vehicles are mentioned in the law). Additionally, the vehicle must be purchased after February 16, 2009, and before January 1, 2010.

Limitations for the Vehicle Sales Tax Deduction

The vehicle sales tax deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price. When calculating the deduction, don't include the sales tax paid as part of the purchase price of the car. If the purchase price is over $49,500, then you'll need to prorate the sales tax. The sales tax deduction is available without further limitation for individuals with modified adjusted gross income of $125,000 or less ($250,000 for married couples filing jointly). The deduction is phased out for individuals with modified adjusted gross income of $125,000 to $135,000 ($250,000 to $260,000 for joint filers).

Sharif J. Small, '05

S.J.S. Financial Firm