The IRS said a tax break is now available to purchase new motor vehicles in states that do not have a sales tax.
Earlier this year, the stimulus package signed into law by President Obama included a provision that allowed taxpayers who buy a new motor vehicle to deduct state or local sales or excise taxes on the purchase. The IRS and the Treasury Department said Wednesday that now new car purchases made in states that do not have a sales tax can also qualify for the deduction. Those states include Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.
Taxpayers who purchase a new motor vehicle in those states that do not have state sales taxes are now entitled to deduct other fees or taxes imposed by the state or local government.
The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicles sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.
This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax, said IRS Commissioner Doug Shulman in a statement. This means that more people can take advantage of this deduction when they file their tax returns next year.
To qualify for the deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim the special deduction only on their 2009 tax returns to be filed next year. The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.
The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize can add this additional amount to the standard deduction on their 2009 tax returns. However, the deduction may not be taken on 2008 returns.
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