Tax Break for New Car Purchases

If you are considering purchasing a new vehicle, you may want to do so before the end of the year. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle before January 1, 2010, are entitled to deduct state or local sales or excise taxes paid on the purchase.

The IRS and Treasury have determined that purchases made in states without a sales tax - such as Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon - can also qualify for the deduction.

According to the IRS, taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other 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. Congress intended for these fees or taxes to qualify for this special tax deduction.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The deduction may not be taken on 2008 returns.

There are certain limitations on this tax break, for further information or to determine if you qualify, please contact Matt Rzepka, CPA, CFP, at mlr@vofcpa.com.