Audio: New Vehicle Tax Deduction

The American Recovery and Reinvestment Act of 2009 provides a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Purchases before Feb. 17, 2009, are not eligible for this special deduction.

The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000.

Taxpayers who make qualifying new vehicle purchase this year can estimate their deduction with the help of IRS Publication 919, "How Do I Adjust My Withholding?" Worksheet 10, lines 10a to 10k take into account purchases above the $49,500 limit, as well as the income phase-outs.

News release 2009-30 has more details. Also see Seven Facts about the New Sales Tax Deduction.

Return to Tax Provisions in the American Recovery and Reinvestment Act of 2009