Special Vehicle Sales Tax Deduction Not Limited to Cars

Taxpayers typically associate the special 2009 vehicle sales tax deduction with the purchase of a new car. However, this deduction also applies to the purchase of new light trucks, motor homes, motorcycles and motor scooters that meet the “motorcycle definition.” So if you are in the market for any of the above, you could qualify for this deduction.

Here are some things that you should know about this new deduction:

• State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles can be deducted.

• Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.

• Purchases must occur after February 16, 2009 and before January 1, 2010.

• This deduction can be taken regardless of whether or not other deductions on your tax return are itemized. If you claim the standard deduction, it is an addition to the standard deduction amount.

• This deduction is for 2009 only and you will get the tax benefit when your 2009 tax return is filed in 2010.

• The amount of the deduction is phased out for higher-income taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers (between $250,000 and $260,000 for joint filers).

The actual tax benefit generated by this deduction will depend upon your individual tax bracket, which is based on your income. Let’s say that you are in the 25% tax bracket and you purchased a $35,000 vehicle. If the sales tax was 8%, you would save $700 in taxes, determined as follows:

The sales tax deduction is $2,800 (8% of $35,000).
The tax benefit is $700 (25% of $2,800).

Keep in mind that this deduction can only reduce your tax liability to zero, so you may not receive the full benefit if you already pay a minimal amount of tax.

If you have questions related to your specific tax benefit or whether you qualify for this deduction, please give this office a call.

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