Dear Driving for Dollars,
I live in a state with no sales tax. But when I bought my new car, I still paid several fees to my state and local government. Do I qualify for the federal tax break for buying a new car?
I have good news. On June 11, the U.S. Treasury expanded its tax deduction on new-car sales to the states without a sales tax, so you now qualify. Consumers in those states are eligible to deduct the fees or taxes imposed by state or local governments that are based on the vehicle’s sales price. Buyers in states with sales tax have been entitled to deduct state or local sales or excise taxes under the American Recovery and Reinvestment Act of 2009 since February.
To qualify, new vehicles must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. The deduction is limited to taxes and fees paid on up to $49,500 of the purchase price of qualifying new cars, light trucks, motorcycles or motor homes. The new-vehicle tax deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and for individual filers with modified adjusted gross incomes of $125,000 to $135,000. Claims must be made on the 2009 tax return and are available regardless of whether taxpayers itemize their returns.
If you have a car question, e-mail it to us at Driving for Dollars.