Tax Deduction on Your 2009 Motor Vehicle Purchase

Those who bought a new "qualified" passenger vehicle in 2009 are entitled to deduct state and local sales and excise taxes paid on the purchase in their 2009 tax returns.

The "qualification" means your purchase need to meet some conditions to make you eligible for it.

What is a "qualified motor vehicle" ?
A qualified motor vehicle should have been a brand new car, light truck, motor home or motorcycles.
That means "used" motor vehicle is excluded from that definition.

And the original use of the vehicle should have begun with the filer of the return.

The gross weight of the vehicle should not exceed 8500 lbs.

The motorcycle cannot have more than three wheels in contact with the ground.

The motor home should have four of the following facilities at the minimum:
-cooking equipment
-refrigerator/ ice box
-self-contained toilet
-heating and/or air conditioning
-potable water system including faucet and sink
-separate 110-125 volt power supply and/or propane
as proof a temporary residential accommodation.

Are there any time limits for the purchase to be qualified?
You should have purchased after Feb. 16, 2009, and before Jan. 1, 2010.
So only those new vehicles purchased on and between Feb. 17, 2009, through Dec. 31, 2009 are qualified for this deduction.

What all taxes related to the purchase are deductible?
The deduction is limited to the state sales and excise taxes, and any local sales and excise taxes paid on up to $49,500 of the purchase.

Are there income limits to claim this deduction?
The deduction of state and local sales and excise taxes up to $49,5000 of the purchase price is allowed full as long as the modified adjusted gross income is less than these levels:
$125,000 for individual filers
$250,000 for joint filers.

The amount of deduction is phased out if the modified adjusted gross income falls between the following levels:
Between $125,000 and $135,000 for individual filers
Between $250,000 and $260,000 for joint filers.

Taxpayers with modified adjusted gross incomes above these levels do not qualify for the deduction.

Do the taxpayer have to itemize deduction while filing the return to avail of this deduction?
This deduction can be availed of whether the taxpayer opts to take it as a standard deduction or prefers to take it as part of the itemized deductions.

How can a filer living in states like Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon where they don't have sales tax get the benefits of this deduction?
In states with no sales tax like the above, the taxpayer can deduct other fees or taxes imposed by the state or local government PROVIDED such fees and taxes were assessed on the purchase of the vehicle and was based on the vehicle's sales price or as a fee per unit.

How to figure out the amount this new motor vehicle sales tax deduction?
Taxpayers should use the following form to calculate the amount of deduction they should claim:
Schedule L, Standard Deduction for Certain Filers.

Some calculations need to be done if the purchase price was more than the limit of $49,500 and/or state and local tax rates are not fixed.
When the state or local tax is fixed and straightforward, it is a matter of just multiplying $49,500 by the combined rate.
But if the rates are not fixed or have additional surcharges that means, you should know the various limits and rates applied, calculate them separately and then add up to arrive at the amount of deduction.

PLEASE NOTE: As an educational article, this is just an introduction to the subject and does not deal with all the aspects of the subject. It is not tax advice. Since the rules and regulations are regularly being updated by the IRS, for definitive and the latest information on the subject you should refer to the relevant publications of the Internal Revenue Service (IRS). For legal issues and expert advise you should approach a tax professional like a tax attorney whose local contact information you may find in local business and telephone directories. If you use tax preparation software, remember to update it before filing to include the latest rules and regulations.