Tax Breaks
Deductions for Cars and Other
Items You Own
Believe it or not, you actually can ring up tax savings as the result of buying things.
January 2010
Familiarize yourself with what is and what is not deductible when it comes to the things you own. And, better yet, some purchases can win you tax credits, which are far more valuable than any deduction can be.
And be sure to check out our other taxopedias.
What's Deductible? -- A to Z
Aircraft. You can deduct either the state and local income taxes you paid in 2009 or the state and local sales taxes -- whichever gives you the biggest tax break. If you live in a state with no income tax, it’s a no brainer: deduct your sales taxes. But even if you live in a state with an income tax, if you bought an airplane during the year, the sales tax deduction might trump the income tax write-off. The IRS publishes tables to estimate how much sales tax you paid and you can add sales tax on the plane to the table amount. If the sales tax rate on the airplane is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Appraisal fees for casualty and theft losses. Deduct appraisal fees paid to determine the amount of a casualty loss as a miscellaneous itemized deduction.
Automobile. As with aircraft, if you bought a car in 2009, you can add the sales tax amount paid on the vehicle to your state sales tax deduction – if you itemize and choose to deduct sales taxes rather than state income taxes. If you claim the standard deduction or if you itemize and choose to deduct state income taxes instead of sales taxes, you can still deduct the sales tax you paid on a new vehicle purchased after February 16, 2009, and before January 1, 2010. You can deduct the state sales tax paid on up to $49,500 of the vehicle’s price; that limit applies separately to any number of new vehicles you purchased after February 16 in 2009.
Boats. As with airplanes, if you bought a boat in 2008, you can add the sales tax paid to the IRS table amount in deciding whether to deduct income or sales taxes on your 2008 federal return. If the sales tax rate on the boat is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Cash for clunkers. If you traded in a vehicle on a more fuel efficient vehicle in 2009 and received a $3,500 or $4,500 “cash for clunker” payment, that amount is tax-free. Do not report it as income.
Casualties and theft losses. You may be able to deduct uninsured losses due to theft or casualty -- a sudden, catastrophic event such as a hurricane, earthquake, fire or accident. First, for each 2009 loss event you have, you must reduce each loss by $500. The remaining amount is then deductible to the extent it exceeds 10% of your adjusted gross income. (The 10% reduction does not apply, however, if your casualty was suffered in an area that the president declared a disaster area.) If your 2009 loss occurred in a presidentially declared disaster area, you can elect to deduct it on your 2008 or 2009 return, depending on which one saves you the most tax.
Company cars. Employers are required to report as taxable income to you the value of personal use of company cars. Among the approved methods of setting the value for 2009 are $1.50 each way if the car is used to commute between home and work, for example, or, for cars that cost $15,000 or less, 55 cents per mile. For personal use of more expensive cars, your employer is required to report higher taxable income.
Computer. It's difficult to qualify to deduct the cost of a computer unless it is used in your business. However, if you use your computer to track investments and do your tax return, you may be able to depreciate part of the cost as a miscellaneous itemized expense. Such costs are deductible to the extent they exceed 2% of your adjusted gross income.
Depreciating vehicles used for business. If you bought a vehicle for your business in 2009, you can deduct up to $10,960 of the cost as depreciation.
Diesel-car credit. Several clean-diesel automobiles now qualify for a tax credit similar to the one available for gasoline/electric hybrids. Purchasers of a new 2009 VW Jetta Sedan 2.0-liter TDI, for example, can earn a credit of $1,300.
Donation of car to charity. Although Congress has cracked down on deducting the value of used cars given to charitable organizations, giving away a car can still cut your taxes. Your deduction is usually limited to the amount the vehicle is sold for by the charity.
Driving for charity. You can deduct 14 cents per mile for each mile you drove while performing services for a charity in 2009.
Driving to doctors. You can deduct 24 cents per mile for each mile you drove for medical-related travel in 2009 as part of your medical expenses. (For 2010 medical driving, the rate drops to 16.5 cents a mile.)
Expensing heavy SUVs and pickups. Although first-year depreciation deductions for business vehicles purchased in 2009 are generally limited to $10,960, the limit is higher for SUVs with loaded vehicle weights over 6,000 pounds. For such vehicles put into use in 2009, $25,000 of the cost can expensed, half of the remaining balance can be claimed as bonus depreciation, then 20% of what’s left can be taken as regular depreciation. On a $50,000 new heavy SUV, $40,000 can be written off in 2009, assuming 100% business use. And for pickup trucks with loaded weights over 6,000 pounds, the entire cost can be expensed if two requirements are met: Their truck beds must be at least six feet long and must be separate from the cab.
Home building materials. If you itemize deductions, you can write off either the state and local income taxes you paid in 2009 or the state and local sales taxes – whichever gives you the biggest tax break. If you live in a state with no income tax, it’s a no brainer: deduct your sales taxes. But even if you live in a state with an income tax, if you purchased materials to build a home or for a home improvement during the year, the sales tax deduction might trump the income tax write-off. The IRS publishes tables to estimate how much sales tax you paid and you can add sales tax on the building materials to the table amount. If the sales tax rate on the building materials is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Hybrid vehicle credit. You can claim a tax credit in 2009 for buying certain hybrid vehicles that run on a combination of gasoline and electric power. The size of the credits decline and eventually disappear after a manufacturer has sold more than 60,000 hybrid vehicles.
Job-related move. See Moving expense.
Luxury car rule. A crackdown limits annual depreciation deductions for cars and other vehicles used in business. See Depreciating vehicles for first-year limits and Expensing SUVs and pickups for exceptions.
Mobile home. As with vehicles, aircraft, boats and building materials, if you bought a mobile home in 2009, you are allowed to add the sales tax you paid on it to the amount in the IRS sales tax table – if you itemize and choose to deduct sales taxes rather than state income taxes. If the state sales rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods. If you moved to take your first job, the 50-mile test applies to the distance between your old home and your new job. The deduction is allowed even if you do not itemize deductions. If you drive your own car, you can deduct 24 cents a mile for 2009 moves. (For 2010, the standard mileage rate for moving is 16.5 cents a mile.)
Personal property tax. You can deduct state and local taxes that are based on the value of personal property you own, such as an annual county tax on the value of your car.
Safety deposit box fees. You can deduct such fees if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. This write-off is a miscellaneous expense, deductible only to the extent all your qualifying miscellaneous expenses exceed 2% of your adjusted gross income. You cannot deduct the rent if you use the box only for jewelry, other personal items or tax-exempt securities.
Sales taxes. If you itemize deductions for 2009, you can choose to deduct either city and state income taxes you pay or state and local sales taxes. This is a no-brainer for those who live in a state that does not impose an income tax ... claim the sales tax deduction. You don't need to keep all your receipts, either. The IRS has a handy-dandy table with estimates based on your income, family size and where you live. Then you can add sales taxes paid on cars, boats, aircraft and other big ticket items. Purchase of such items could lead some taxpayers in income-tax states to pay more sales tax than income tax. Even if you don’t itemize, or if you elect to deduct state income taxes instead of sales taxes, you can deduct the sales taxes paid on a new car purchased in 2009 after February 16. See Automobile.
Sales tax paid on leased vehicle. If you lease a vehicle in 2009, you are allowed to add any sales tax you paid on the transaction to the amount in the IRS sales tax table -- if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales tax rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Sales tax paid on vehicle you bought. If you bought a vehicle in 2009, you are allowed to add the sales tax you paid on it to the amount in the IRS sales tax table -- if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate. If you don’t itemize, or if you elect to deduct state income taxes instead of sales taxes, you can still deduct the sales tax paid on a new vehicle purchased after February 16, 2009, and before January 1, 2010. See Automobile.
Standard mileage rate for business driving. You can deduct 55 cents per mile for each mile you drove on business in 2009, plus parking and tolls. If your employer did not reimburse you the full 55 cents a mile for using your vehicle for your job, claim the difference as an employee business expense. (For 2010, the rate is 50 cents a mile.)
Vacation home. Mortgage interest on a second home is deductible, just as it is for your principal residence. Property taxes can be deducted on any number of homes. If you rent the place for 14 or fewer days during the year, the rental income is tax-free to you. If you rent it for more than 14 days a year, you must report the income but also may claim deductions for rental expenses.
Vehicle registration fees. Any fee you pay to register your vehicle is deductible on Schedule A as a personal property tax if the fee is based on a percentage of the vehicle's value.
See our other taxopedias.