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It's a great time to be new car shopping

Posted by Cheryl Costa February 23, 2009 10:26 AM

If I buy a new car, will I receive all the sales tax back? How does it work? What do I deduct it from?

and

I bought my new car on February 16th, am I eligible for the deduction?

Car makers are really struggling these days. Zero percent financing offers are now more and more common. The Big Three automakers expect to sell only about 9.8 million cars this year -- the lowest total recorded since December 1981. And, the recently signed stimulus bill adds even more incentives.

Now, if you purchase a new car or truck, you will be allowed to deduct the sales or excise taxes that you pay. And this is an "above the line" deduction which means that you do not have to itemize your deductions in order to claim the deduction.

There are some restrictions that you need to be aware of though. First, the deduction applies to purchases made the day the stimulus bill was signed into law (February 17th) and it continues through December 31, 2009. Second, the deduction is limited to the taxes owed on a purchase up to $49,500. Also, there are income limits as well. If you are married filing jointly, your Adjusted Gross Income (AGI) cannot exceed $250,000 if you want to qualify for a full deduction and if you are single, your AGI cannot exceed $125,000. The deduction is phased out completely for singles earning $135,000 and marrieds earning $260,000. Here in Massachusetts, the sales tax is 5 percent so if you buy a new $25,000 car, your deduction would be $1,250. You would claim this deduction when you filed your 2009 tax return.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.
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About the contributors

Jill Boynton is co-founder of Cornerstone Financial Planning in Newington, N.H. Along with traditional financial planning services, Boynton provides analysis specifically for divorce.
Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.
Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.
Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.

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