IRS and Treasury Announce Tax Break on New Car Purchases in No Sales Tax States
by Steve Cypher on Thursday, June 11th, 2009If you live in a state with no sales tax you can still catch a break as the IRS and Treasury Department announce new tax breaks for new car buyers in states such as Hawaii and Oregon.
ARRA provisions
Here at Auto Credit Express we thought the provision in the American Recovery and Reinvestment Act of 2009 that allows taxpayers to deduct state or local sales or excise taxes paid on the purchase of a new car would help encourage new car sales. But since we live in a state that has a sales tax, it never occurred to us that it might in some way discriminate against those individuals living in states that have no sales tax. It did, however, come to the attention of both the Internal Revenue Service as well as the Treasury Department as evidenced by an announcement today from both government agencies.
New auto purchase tax deduction
To address the inequalities that seem to have arisen, both the IRS and Treasury have determined that purchases made in states without a sales tax (Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon) can also qualify for the deduction.
In those states, taxpayers are entitled to deduct “other” fees or taxes that are imposed by either state or local governments. In order to qualify for a deduction, 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.” As the IRS sees it, the U.S. Congress intended for these fees or taxes to qualify for the tax deduction as they are included in the transaction of buying a new vehicle.
“This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax,” said IRS Commissioner Doug Shulman. “This means that more people can take advantage of this deduction when they file their tax returns next year.”
Qualifying for the deduction
Qualifications for the deduction are the same as for those of the sales tax deduction, meaning that the vehicle must be purchased after February 16th of 2009 and before January of 2010. Taxpayers will be able to claim the deduction only on their 2009 tax returns that will be filed in 2010.
Limits on the deduction include only those fees and taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle and the amount is phase out for taxpayers whose modified adjusted gross income (after above the line tax deductions) is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for those filing jointly.
One more thing
The deduction is available regardless of whether you itemize your deductions on your return. Those taxpayers that don’t itemize will simply add this additional amount to the standard deduction on their 2009 return (and only on the 2009 return).
The Bottom Line
The latest ruling should help those taxpayers who live in states without sales tax (we should be so lucky) take advantage of the American Recovery and Reinvestment Act by allowing them to deduct like-minded fees associated with new car purchases.
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