Sales Tax Deduction for Vehicles

For 2009 only, individuals can deduct sales tax paid on the purchase of a new vehicle. The deduction is available for cars, trucks, motorcycles, motor homes and recreational vehicles. The vehicles must be purchased after February 16, 2009, and before January 1, 2010 to qualify for the deduction.

Claiming the Vehicle Sales Tax Deduction

People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction. Itemizers will take this deduction in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes in lieu of state and local income taxes, then the taxes paid on the car will be included along with other sales taxes you paid.
Qualifying for the Vehicle Sales Tax DeductionThe vehicle must be new (not used). The vehicle must be an automobile, light truck, or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds. Motor homes and recreation vehicles also qualify (no gross vehicle weight restrictions for motor vehicles are mentioned in the law).

Additionally, the vehicle must be purchase after February 16, 2009, and before January 1, 2010.
Limitations for the Vehicle Sales Tax Deduction

The vehicle sales tax deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price. When calculating the deduction, don't include the sales tax paid as part of the purchase price of the car. If the purchase price is over $49,500, then you'll need to prorate the sales tax.

The sales tax deduction is available without further limitation for individuals with modified adjusted gross income of $125,000 or less ($250,000 for married couples filing jointly). The deduction is phased out for individuals with modified adjusted gross income of $125,000 to $135,000 ($250,000 to $260,000 for joint filers). To prorate your deduction based on this income phaseout, take the excess of your modified adjusted gross income over the threshold amount, divide by $10,000, and subtract that from the total sales tax paid on your vehicle.

What about States with No Sales Taxes?

The states of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a sales tax. Taxpayers living in these states can deduct fees, excise taxes, and other taxes that are assessed on the purchase of a vehicle. "The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee," according to the Internal Revenue Service.

Here are a couple of tips to consider:

Consider purchasing rather than leasing. Purchases of new automobiles counts for the deduction, but leases do not qualify.

Don't let the sales person talk you into a higher purchase price because you can write off the sales tax. People who qualify for this deduction will likely be in the 28% tax bracket or lower. For people in the 28% bracket, their taxes will be reduced by $280 for every $1,000 spent on sales tax.