A while back I posted about the sales tax deduction on new car sales that was included in Obama’s 2009 Economic Stimulus package. Basically the provision in the bill gives every taxpayer who buys a new (not used) car after Feb. 16, 2009 the ability to claim a deduction on their 2009 income tax for the sales tax that they pay on their new car purchase.
For example, let’s say you buy a new car for $20,000 after February 16th. At a tax rate of 6.5% you would end up paying about $1300 in taxes. That means your taxable income could be reduced by $1300 when you file your 2009 taxes. (Note: this does not mean that you will get a $1300 check in the mail.)
Since I made my original post, I’ve gotten a lot of questions about the provision. I decide to answer the most common ones here. If you have more questions, please leave them in the comments.
7 Common Questions About The Sales Tax Deduction On New Car Sales
- When do I have to buy the car to get the deduction? Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
- Can I claim the deduction on my 2008 taxes? The deduction may not be taken on 2008 tax returns.
- When do I get the deduction? Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
- How expensive of a car can I buy and still deduct sales tax? State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
- Can I get this deduction on the purchase of a used car? No. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
- Do I have to itemize on my taxes in order to get this deduction? This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
- Our family does well financially. Can we still get the deduction? The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
If You Do Buy A New Car, Remember These Things
If you do end up buying a new car, it’s important to go in with the right mindset, and with certain goals in mind. Remember these things.
- Don’t get car fever! Take your time, and look for the best deals and research the car you want. You can find a lot of good deals right now, so take the time to find them.
- Negotiate the price. If you get a deal from one dealer, take that dollar amount to another dealer, see if they’ll come down on the price.
- Ask for factual information. For example, don’t ask, “Does it get good gas mileage?” The dealer may consider 10 miles to the gallon to be good mileage, but you won’t. Ask, “How many miles per gallon does it get?”
- Be willing to walk away. Don’t get so set on a certain car that a dealer can sense he’s got you hook line and sinker. If he does, you won’t get as good of a deal.
- Forget the extras. Don’t pay for things that you don’t need like pin striping, special detailing and extended warranties. If you have your full emergency fund in place, it’ll cover any costs you have if the car has problems.
- 2 are better than 1. Take a friend or family member who can help you keep your head. Your friend can also help you to remember details about the car that the dealer tells you, which can help you make your decision.
Have you purchased a new car since the tax deduction went into effect? Was it a factor in your decision to buy? Do you think it’s enough of an incentive to actually get more people on the showroom floor? Tell us your thoughts in the comments.
My wife and I are thinking about getting a new vehicle because we are expecting a child soon. But I want to wait until they decide if they will offer the “cash for clunkers” program. That should help make for some very good deals, especially in conjunction with the tax savings and dealerships that are closing. We won’t rush though – we will take our time and make sure we get a deal that is good for us and makes sense over the long run. :)
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No Matter says
So you get to reduce your taxable income by something like $1300? That’s not going to make much difference come tax time and it certainly doesn’t offset the fact that you will lose more to that to depreciation between the time you buy the new car and April 15th; literally.
A new car is never a good deal. Buying one is a luxury. If you want to buy one, that is your business, just understand that you are paying a premium to do so.
The best cars, in terms of holding their value, still lose around 40% of their initial price (even if you got a ‘good deal’ with so-called rebates, etc.) in the first 3 to 5 years. Step down from the list of the top value-holders and the rate increases. No thanks.
Does a 2009 Demo car (bought from the manufactures dealer) qualify as a new car?
We just purchased a 2009 Buick Enclave (LOVE IT!). We didn’t know about the sales tax deduction until after we purchased the vehicle so I guess we can safely say that it did not impact our decision — but I certainly will not turn down the money!
Anthony J.Ruggieri says
my wife and I are elderly . We bought a new car in May of 09. Can we get the money back we paid for the sales tax. We don’t need the tax deduction for 09. We would love to get the sales tax back.
People, please understand that you should consider the car’s depreciation factor ONLY if you intend to sell/trade-in the car at a later date. If you intend to keep it, like me, for the rest of its life then the depreciation factor is irrelevant.
It’s great that we have all of these incentives. However, as a new car buyer who purchased prior to feb 16th, 2009 (by a couple of weeks), I feel cheated that the deduction does not apply to me. Isn’t the whole idea to “stimulate” the economy? I did my share, only sooner than most. Any talks of Uncle Sam appending this to include all vehicles purchase in the year 2009.
I haven’t heard anything about them extending it currently. Sorry!
Peter Kushkowski says
Having purchased and taken delivery of our 2009 Mazda6 on January 21, 2009, we’re in the same boat as Rich. What steps can we take to have Congress role the date back to January 1?
john gannon says
If my wife and I buy new cars, can we both get the tax writeoff? We file joint returns
I can’t find a clear answer on that question, I’m finding conflicting answers from different sources. If you are considering doing this, I would contact the IRS to see what they can tell you.
Peter Anderson says
The IRS site now gives some guidance on this. They say:
Q. Can I take the deduction for a second or third vehicle I purchase?
A. Yes. There is no limit on the number of cars for which you can claim the deduction, provided each car is a qualified vehicle under the law.
Raymond Hachey says
I am retired and collect ss and pension. My ss is $22,000 a year and my pension is $6,700 a year. I only have to use my pension to make out my taxes so i get back evrything i pay in ($67.00) Could i still get some of this excise tax and sales tax rebate back with such a low income???
Dealing with the cash for clunkers and the tax credit is not something in the realm of the ordinary person with an old fashioned sense of economics and government. It is not just another “stimulus,” a meaningless term.
I will get a bit serious, here, and pray you read on.
Don’t think of these programs as one more thing to consider; one more economic factor. There is much more going on.
The people in charge of our government are either well-versed socialists or dupes (“useful idiots” as the Russians had it) who are having a good time getting votes by pushing money on voters – they are pushers all. They whip up fear in the weak minded.
Here is the key – each program like these increases the power of the government, buys votes, and redistributes the wealth. This is a well practiced manner to centralize control over a people – been done for decades in Europe.
The government merely uses your childrens’ money to buy you off. Politicians do not care about the national debt. They love it, as the government becomes more necessary. It is your families money being used to build power. They do not care about sensible economics. Are you watching what they do? Alien health care, education, legal assistance, money for clunkers, for ACORN, open the borders. Come on, there is no rational person who would do this if they wished to keep their country.
We wonder about the FED and the SEC and think about their Byzantine palaces to address problems they create.
Notice how we all talk about the plans where we can get something free or save the BANKS and CAR COMPANIES? The banks run Washington and the union voters run the car companies – isn’t this obvious? We could pay our doctors directly is our taxes were at a sane rate.
As to the question posed, my answer, after long thought. I take all the “stimulus” money I can (got $4,500 for a clunker and will take off the tax on it) and pay as little tax as I can. I don’t buy things. My quest is to starve the pig. THis is how the Soviet Union finally fell – when the socialists were taken to the obvious end of their game. Their stealing had to end. Nothing left. If we don’t push, then the stron American spirit will be dedicated to paying down a debt, just like the government wants.
Today, I thank each and ever person who asks about my car. I thank them for their money to buy it, some $6,000, with the credit. I get very strange looks, which I hope are one’s of awareness.
Next election cycle, I vote against every incumbant, every one, unless they showed a strong financial conservatism. TO me, the GOP is just moving slower toward state control, so I have no interest in them either. Just vote against everyone.
You may say that is a waste and you vote for the better candidate, one with a chance, but that only means a Blood gets elected instead of a Crypt. They are all running a racket and you are paying. You are selling you grandchildren to the company store.
Your vote matters and giving it to the lesser of two evils is not a good vote.
Start voting to create a strong alternative and “starve the pig.” Get active, as your enemy wants nothing more from you than a grin as you get something you think is free. The free money is a noose.
Question: In purchasing a new car – will I qualify for both the “tax rebates” and the” cash for clunkers program”?
i am not required to file taxes, as my income is not taxable, how do i file for a tax credit?
Can you buy more than 1 new car and get the deduction twice?
I bought my son (40yrs old) disabled, a new car. He is married and doesn’t live with me.
I paid for the car and license’s fees.
Can I take the sales tax deduction on my personal taxes?
Praful Patel says
I have just come back from a car dealer hoping to complete the purchase of a new car.However, the sales manager insisted on calculating the sales tax on gross value of the car and not on the value of the car after deducting the value of my trade-in and amount of $ 5000.00 that I was giving as down payment. Does anyone think that he is correct or is he trying to take me to the cleaners ? I will appreciate a response from anyone who has had such an experience.
Regarding the “purchase” of new car. If I sign and pay off the new car contract before 1/1/2010, can I still count the deduction even though I wont pick the car up til the 2nd or 3rd week in January ’10?
I have the exact same question. I ordered a vehicle but it won’t be built until the 2nd week of January 2010. If I paid for it before year end will it still qualify?
I talked to my accountant about this and he said as long as the dealer will issue a bill of sale and money changes hands- no problem.
Joanne Blake says
I got a new car in 2009, however it is a lease, am I still able to get the sales tax deduction?
Peter Anderson says
The deduction does not apply to leased vehicles, rentals or used cars. Sorry.
any word if this will be repeated for 2010?
Peter Anderson says
I haven’t heard anything about an extension of the deduction.
Peter Kushkowski says
This statement in Peter Anderson’s opening paragraph is misleading, and should be corrected to avoid the confusion it created:
“…every taxpayer who buys a new (not used) car in 2009 the ability to claim a deduction on their 2009 income tax for the sales tax that they pay on their new car purchase.”
As above discussions reveal, the sales tax deduction applies ONLY to new cars that were purchased aFTER February 16, 2009.
Peter Anderson says
It was noted later in the article that the deduction was only available on purchases made after February 16th. I have updated the article, however, to clarify in that first paragraph. Thanks for helping to clear up any confusion!