MOTOR VEHICLE SALES TAX DEDUCTION

For 2009, there is a new deduction for state and local sales and excise taxes paid on the purchase of new (not used) cars, light trucks, motor homes and motorcycles after Feb. 16, 2009 and before Jan. 1, 2010. The deduction generally is available regardless of whether you itemize deductions on Schedule A or claim the standard deduction. The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. This is one area where there is good news from the IRS-an IRS spokesperson says that the dollar limitation is imposed on a per vehicle basis. This means that you can deduct taxes on two or more purchases of qualifying motor vehicles, up to the limit on each one.

TAX CREDIT FOR PURCHASE OF HYBRID AUTOMOBILES

A purchaser of a hybrid passenger automobile is allowed a tax credit of from $400 to $3,400 depending on the model.  The amount of the hybrid credit depends on the fuel efficiency of the vehicle. The more gas it saves, the higher the credit. IRS has certified various hybrid models made by Ford, General Motors, Toyota, Honda, Nissan, and Mazda as qualifying for the credit. In each case, the certification specifies the amount of the credit for the particular model.

However, the law limits the credits to 60,000 hybrid vehicles from each automaker. Once a manufacturer has sold 60,000 hybrid vehicles, the tax credit for that manufacturer's hybrids is slowly reduced over the next five consecutive quarters, eventually dropping to zero. Honda and Toyota hybrid sales have already reached the 60,000-vehicle limit, and the credits for those models have been completely phased out. Ford hybrid sales have also reached the 60,000-vehicle limit, and the credit is currently being phased out.

Hybrid vehicles built by the other hybrid manufacturers haven't yet reached the 60,000-vehicle limit, and thus continue to qualify for the maximum credit allowable.

Do not hesitate to contact our firm if you have any questions about these tax deductions and credits.