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It's a great time to be new car shopping

Posted by Cheryl Costa  February 23, 2009 10:26 AM

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If I buy a new car, will I receive all the sales tax back? How does it work? What do I deduct it from?


I bought my new car on February 16th, am I eligible for the deduction?

Car makers are really struggling these days. Zero percent financing offers are now more and more common. The Big Three automakers expect to sell only about 9.8 million cars this year -- the lowest total recorded since December 1981. And, the recently signed stimulus bill adds even more incentives.

Now, if you purchase a new car or truck, you will be allowed to deduct the sales or excise taxes that you pay. And this is an "above the line" deduction which means that you do not have to itemize your deductions in order to claim the deduction.

There are some restrictions that you need to be aware of though. First, the deduction applies to purchases made the day the stimulus bill was signed into law (February 17th) and it continues through December 31, 2009. Second, the deduction is limited to the taxes owed on a purchase up to $49,500. Also, there are income limits as well. If you are married filing jointly, your Adjusted Gross Income (AGI) cannot exceed $250,000 if you want to qualify for a full deduction and if you are single, your AGI cannot exceed $125,000. The deduction is phased out completely for singles earning $135,000 and marrieds earning $260,000. Here in Massachusetts, the sales tax is 5 percent so if you buy a new $25,000 car, your deduction would be $1,250. You would claim this deduction when you filed your 2009 tax return.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of, a credit card and gift card marketplace, and, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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