Deducting Sales and Excise Tax on a New Vehicle Purchase


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Deducting Sales and Excise Tax on a New Vehicle Purchase

  1. 1. Ameriprise Financial Greg Younger, CRPC® 14755 N. Outer Chesterfield, MO 63017 636.534.2092 Deducting Sales and Excise Tax on a New Vehicle Purchase April 28, 2009
  2. 2. Ameriprise Financial Page 2 Deducting Sales and Excise Tax on a New Vehicle Purchase If you recently purchased a new vehicle, or intend to purchase one by the end of the year, you may benefit from a temporary new deduction created by the American Recovery and Reinvestment Act, which was signed into law in February. As a result of this legislation, if you purchase a new passenger automobile, light truck, or motorcycle (vehicles must have a gross weight rating of no more than 8,500 pounds) on or after February 17, 2009, and before January 1, 2010, you'll generally be able to deduct any state or local sales and excise tax you pay on the purchase on your 2009 federal income tax return. New motor home purchases can qualify as well. Individuals who itemize deductions on Form 1040, Schedule A, can include state or local sales and excise tax as part of their deduction for taxes paid. If you don't itemize deductions, you can deduct the qualifying sales and excise tax as part of your standard deduction. There are, however, a couple of limitations: • The amount of sales and excise tax that you can deduct is capped at the amount that would be paid on a vehicle with a purchase price of $49,500. So, if you purchase a $100,000 motor home, only the sales and excise tax attributable to the first $49,500 of your purchase price is deductible. • You're not entitled to a deduction if your modified adjusted gross income (MAGI) is greater than $135,000 ($260,000 if you are married and file a joint return). And you're only entitled to a partial deduction if your MAGI is between $125,000 and $135,000 (between $250,000 and $260,000 if you are married and file a joint return). Note: For 2009, you already had the option to deduct general state and local sales tax in lieu of state and local income taxes--the new rules allow you to deduct the state or local sales and excise tax attributable to a new vehicle purchase in addition to state and local income tax. The new rules are also more generous in cases where your state imposes sales tax on a new vehicle purchase at a rate that's higher than the general sales tax rate: the temporary deduction rules allow you to deduct the actual tax paid (subject to the limits noted above) instead of limiting you to the tax that would have been paid under the general sales tax rate. See disclaimer on final page April 28, 2009
  3. 3. Page 3 Ameriprise Financial The information contained in this material is being provided for general education Greg Younger, CRPC® purposes and with the understanding that it is not intended to be used or interpreted 14755 N. Outer as specific legal, tax or investment advice. It does not address or account for your Chesterfield, MO 63017 individual investor circumstances. Investment decisions should always be made based on your specific financial needs and objectives, goals, time horizon and risk 636.534.2092 tolerance. The information contained in this communication, including attachments, may be provided to support the marketing of a particular product or service. You cannot rely on this to avoid tax penalties that may be imposed under the Internal Revenue Code. Consult your tax advisor or attorney regarding tax issues specific to your circumstances. Neither Ameriprise Financial Services, Inc. nor any of its employees or representatives are authorized to give legal or tax advice. You are encouraged to seek the guidance of your own personal legal or tax counsel. Ameriprise Financial Services, Inc. Member FINRA and SIPC. The information in this document is provided by a third party and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial Services, Inc. While the publisher has been diligent in attempting to provide accurate information, the accuracy of the information cannot be guaranteed. Laws and regulations change frequently, and are subject to differing legal interpretations. Accordingly, neither the publisher nor any of its licensees or their distributees shall be liable for any loss or damage caused, or alleged to have been caused, by the use or reliance upon this service. Prepared by Forefield Inc. Copyright 2009 Forefield Inc.