IRS Makes New Car Tax Break Available in No Sales Tax States

The Internal Revenue Service (IRS) has announced that the tax breaks for new car purchases provided by the American Recovery and Reinvestment Act of 2009 are also available in states that do not have a state sales tax.

Under the tax breaks included the American Recovery and Reinvestment Act, people who buy new vehicles during 2009 are allowed to deduct state or local sales or excise taxes paid on the purchase. The recent IRS determination means that purchases made in states without a sales tax -- such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon -- can also qualify for the deduction.

Taxpayers in states without sales tax will be entitled to deduct other fees or taxes imposed by the state or local government. According to the IRS, this was the intention of Congress.

"This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax,” said IRS Commissioner Doug Shulman in a press release. “This means that more people can take advantage of this deduction when they file their tax returns next year.”

The Fine Print: According to the IRS:

“To qualify for this deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

“The deduction is limited to the fees or taxes paid on up to $49,500 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 $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

“The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The IRS reminded taxpayers the deduction may not be taken on 2008 returns.”

Also See:
IRS Pushes New Car Tax Break
Tax Breaks in the 2009 Economic Stimulus Bill

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