IRS Reminds Car Shoppers about 2009 Tax Break
by Steve Cypher on Friday, December 18th, 2009The IRS reminds us that consumers with both good and bad credit have only have 18 days to go in which to take advantage of the sales and excise tax deduction for new vehicles which may not be available in 2010.
Less than 2 weeks
At Auto Credit Express we’re beginning to sound like a broken record. After all, we wrote about this same topic only last week. But the fact remains that, like the cash for clunkers program, the sales and excise tax deduction for new vehicles as part of the American Recovery and Reinvestment Act may very well not be available after the first of the year. And with sales and excise taxes adding an additional five to eight percent to the cost of a new vehicle, buying a new car before the first of the year, especially for consumers planning on using a bad credit car loan for financing, seems to be a no brainer if you plan on purchasing a vehicle in the next few months.
Not only will credit challenged consumers be reestablishing their car credit and raising their FICO score, they’ll also be saving hundreds of dollars of the transaction price.
New cars have a number of advantages going for them. Apart from the obvious reliability and warranty factors, new cars often come with rebates and incentives – money that can often be used towards a down payment. And while high risk borrowers will still be paying the higher interest rates required of bad credit car loans, they still have two weeks in which to take advantage of the current sales and excise tax deduction, which is set to expire on January 1st, 2010.
Here is more information from the IRS:
WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.
Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.
Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.
The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.
Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.
As we see it
Any time you can make a bad credit car loan more affordable, it’s a good thing. And bad credit car loan buyers can do exactly that by buying a new car before the January 1, 2010 deadline. And remember, you don’t have to itemize in order to take advantage of this deduction.
For more information about car loans for people with bad credit, we invite you to visit our web site at: www.autocreditexpress.com.
For more information on this and other key tax provisions of the Recovery Act visit the official IRS Website at IRS.gov.
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