New Car Sales & Excise Tax Deduction

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Beater Used CarIf you bought a car between February 16, 2009 and January 1, 2010 (non-inclusive), and you paid a sales tax or excise tax, you may be able to deduct it from your income taxes. This was one of the provisions of the 2009 American Recovery and Reinvestment Act. The car, light truck, or motorcycle has to weigh less than 8,500 pounds and you must have purchased it new. You cannot take the deduction if you purchased a used car or if you leased it and this deduction is not related to the Cash for Clunkers program. You can deduct the sales or excise tax up to the first $49,500 of the purchase price. If you live in a state without a sales tax, like Delaware, you can deduct other fees and taxes as long as they’re collected by the government on sales. Fees collected by the dealer are not deductible.

The amount of your deduction is limited by your modified adjusted gross income. Single filers get a full deduction if their income is less than $125,000, a partial deduction up to $135,000, and no deduction if their income exceeds $135,000. For married filing jointly, a full deduction is available for incomes up to $250,000, a partial up to $260,000, and then no deduction if your MAGI exceeds $260,000.

Other salient details:

  • You do not need to itemize to take this deduction.
  • While the car does have to be new, it didn’t necessarily have to be a 2009 model vehicle. As long as you were the car’s first owner, it is eligible for the deduction.
  • This deduction is only available for your 2009 tax year return.
  • If you live in a state without sales tax, you can deduct any fees or taxes assessed on the purchase of the vehicle as long as the fee is based on the sales price or is a “per unit” fee.
  • There is no limit on the number of vehicles as long as they would’ve qualified individually. If you purchased three new vehicles, you can deduct sales tax on all three.

If we were to use Maryland as an example, you pay a 6% sales tax on the purchase of a new vehicle. If you are a single filer and earned less than $125,000, then you could deduct the 6% sales tax from your income taxes. If you purchased a $20,000 car, you now have a $1,200 tax deduction.

(Photo: wickenden)

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5 Responses to “New Car Sales & Excise Tax Deduction”

  1. I almost forgot that this deduction was there until TurboTax mentioned this particular deduction. I remember hearing about this last year when I did buy a car, but I completely forgot when I began doing my taxes.

  2. “… or motorcycle has to weigh less than 8,500 pounds …”

    If your motorcycle exceeds 8500 pounds, you might have some other problems that need to be addressed 🙂

  3. I had not heard of this deduction either. Obviously the big news items last year was the cash for clunkers as well as the home buyer tax credit.

    With all the debt our favorite Uncle is taking on, these little favors will not last much longer. Get ’em while you can.

  4. jsbrendog says:

    knew i shouldn’t have waited so long to buy a car. laaaaame

  5. eric says:

    This would have been so gooooooooood…..except I bought my car last year second hand. Sigh..oh well.

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