IRS Clarifies New Car Tax Deduction

by Mike Godfrey, for LawAndTax-News.com, Washington

01 April 2009

The Internal Revenue Service (IRS) has announced that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman, adding: “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”

The deduction is limited to the state and local sales and excise taxes paid on up to USD49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between USD125,000 (GBP87,345) and USD135,000 (GBP94,333) for individual filers and between USD250,000 (GBP174,661) and USD260,000 (GBP181,647) for joint filers.

The IRS has also stipulated that the vehicle must be purchased after February 16, 2009, and before January 1, 2010, to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return.

Lastly, the IRS has reminded taxpayers that the deduction may not be taken on 2008 tax returns.

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