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New car tax deduction has catch (of course)

Posted by Bill Griffith  May 6, 2009 04:50 PM

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Manufacturers have been offering cash-back incentives on new car purchases for years. Now you can add an Internal Revenue Service benefit to that package.

The IRS announced that state, local and excise taxes on new car purchases made this year can be deducted on the buyer’s 2009 tax returns next year.

“For those thinking about buying a new car, this deduction may give them a little more drive to make their purchase this year,” said IRS commissioner Doug Shulman.

The deduction applies to state and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle bought from Feb. 16 to Dec. 31, 2009.

Of course, there’s a catch. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 to $135,000 for individual filers and $250,000 to $260,000 for joint filers.

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4 comments so far...
  1. So... For those who itemize, state sales taxes have been deductible the past few years and not just up to $49,500 purchase price. Of course, phase outs were still applicable.

    But at least this extends the tax deduction to those who do not itemize.

    Posted by pajja May 9, 09 01:07 PM
  1. Note that it's not a tax credit, it's a tax deduction. So if you qualify for it, you only save a percentage. If the sales tax and excise tax totalled $2500 and you were in the 28% bracket, you'd actually save $700 off your federal tax, not $2500. Of course, if you're subject to the AMT, you'd probably save nothing.

    Posted by High_Taxes May 9, 09 01:17 PM
  1. Like most things in life, if it sounds too good to be true, then it probably is....

    Posted by Anonymous May 11, 09 06:46 AM
  1. While I won't quibble too much with the $49,500 cap on purchase price (as most cars, especially US made cars, are under this price) so we aren' t subsidizing Mercedes-Benz and Porsche, I question the income level phase out since if the point is to stimulate the economy and it is the people with more money that can afford to buy the cars. So, is the point to stimulate car sales and production and the economy, or to give a tax break to the middle class? If it is the latter than even without the phase out the middle class still gets break while the wealthier are also incentivized to by a car if it is the former,

    And no, I don't come close, by a long shot, to the phase out income levels. And I usually don't mind seeing the rich pay more. But in this case I have to wonder what is point of phase out.

    Posted by Marie May 12, 09 01:28 PM

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Clifford Atiyeh is an automotive writer and car enthusiast . He has spent his entire life driving cars he doesn't own.
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Bill Griffith is a veteran Boston Globe reporter, having reviewed cars for more than 10 years and serving as assistant sports editor for 25 years. He was also the paper's sports media columnist.
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