If you buy a NEW car or truck on or before December 31, 2009, you will qualify for an income tax deduction for the sales tax or excises tax paid on the portion of the cost that does not exceed $49,500 – even if you don’t itemize your deductions. Ignoring county and city taxes, Arkansas residents will be allowed an income tax deduction of up to $2,970 per car or truck purchased.Oklahoma residents will deduct the 3.25% excise tax paid on a new car or truck purchase for a deduction of up to $1,609.
The benefit works best for personal use cars and trucks. Owners that buy cars or trucks for business use already get to deduct sales tax although it is through the depreciation of the vehicle, used or new and not just for sales tax paid before December 31, 2009. A business that buys a car or truck normally adds the sales tax paid to the cost of the vehicle which is then depreciated over five years, unless it qualifies to be deducted in the year purchased under Section 179. But for business cars and trucks bought on or after February 17 and on or before December 31, 2009 sales taxes paid can be deducted rather than depreciated as part of the cost of the car or truck.
Now for the “except for’s”. With the Internal Revenue Code there is always an “except for” or two.
The new car or truck must be a passenger automobile, light truck or motorcycle with a gross vehicle weight rating of 8,500 pounds or less, or a motor home. No weight restrictions on the motor home.
The sales tax deduction is phased out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 on a joint return). E.g., a single person with modified adjusted gross income of $130,000 could deduct 50% of the sales tax paid. The same person would not be allowed any deduction for sales tax paid if his modified adjusted gross income exceeded $135,000.
There is no limit to the number of vehicles you buy.If you buy two new cars, you get to deduct sales taxes paid on each vehicle on the portion of the cost that does not exceed $49,500.
How do you take this deduction if you don’t itemize? You simply add the sales tax or excise tax paid to your standard deduction.
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