Even if you missed out on the “cash for clunkers” government rebate earlier this year, you can still save big by deducting the state and local taxes you pay when you buy a new car, light truck, motor home or motorcycle by December 31. (Sorry -- used vehicles don’t qualify for the sales-tax break.)
The deduction, which you claim when you file your 2009 tax return next spring, is limited to the taxes and fees paid on up to $49,500 of the purchase price of a vehicle, but there is no limit to how many vehicles you can buy. So, for example, a married couple could buy two cars and deduct the sale taxes on both. The break starts phasing out for individuals with incomes of more than $125,000 and disappears at $135,000. It’s available to married couples with incomes of up to $250,000, phasing out at $260,000.
The deduction applies to vehicles purchased from February 17, 2009, through the end of the year. The sales-tax break is set to disappear at year-end and isn’t likely to be extended.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you don’t itemize, you can add the sales-tax amount to your standard deduction. If you itemize, you’ll include the sales tax with your other write-offs. And if you live in one of the five states that don’t impose a state sales tax -- Alaska, Delaware, Montana, New Hampshire and Oregon--you can deduct other fees or taxes on the vehicle purchase imposed by your state or local government, as either an add-on to your standard deduction or an additional itemized deduction.
This break is of no benefit to taxpayers who itemize and choose to deduct state sales taxes instead of state income taxes (a scenario most likely in states that don’t impose an income tax). Even before the new rule took effect, they could deduct the sales tax paid on a car -- new or used -- with no purchase-price limit.
-
What Are Passive Income Strategies and How Can I Use Them in 2025?An extended period of rising prices has everyone looking for a little more cash to make ends meet.
-
Will You Owe Taxes on Your Recently Forgiven Student Loan?Loan Forgiveness If you received student debt forgiveness last year, know these key points when filing taxes. Plus — what can you expect from a new president?
-
Will You Owe Taxes on Your Recently Forgiven Student Loan?
Loan Forgiveness If you received student debt forgiveness last year, know these key points when filing taxes. Plus — what can you expect from a new president?
-
Homeowners Rush to Install Solar Panels Before Trump Cuts Tax CreditsTax Credits With a new incoming presidential administration, is the solar energy tax credit in the hot seat?
-
Gov. Hochul Vows to Deliver $1 Billion in Tax Relief to New YorkersState Tax The proposed tax cuts would benefit New York middle-class families.
-
More Taxes Could Slam New Yorkers Over MTA Budget ShortfallState Taxes Lawmakers warn that New Yorkers may need to brace for more taxes.
-
IRS Free File Is Now Open for 2025: Are Your Taxes Eligible?Tax Filing Official tax season doesn't begin until late January, but taxpayers can start filing free online returns now.
-
California Fires: How to Recover Tax Records and Other Important DocumentsDisaster Recovery Having your tax records and other vital documents is important for claiming casualty loss deductions that can help with recovery.
-
Child and Dependent Care Credit: How Much Is It?CDCTC The non-refundable tax break can help working families afford quality care for their child or qualifying dependent.
-
Gov. Hochul Wants to Triple the New York Child Tax CreditState Tax Millions of New York families could get a larger state child tax credit check over the next two years under a new proposal.
