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.