2009 Federal Sales Tax Deduction

The American Recovery and Reinvestment Act of 2009 contains an important tax incentive for individuals and businesses who purchase a new passenger automobile, light truck or motor home from February 17, 2009 thought the end of 2009.  In general, buyers will be permitted to deduct the sales/excise tax imposed on their new vehicle purchase on their federal income tax return.

What Taxes are Deductible?  The lax allows a deduction for state or local sales or excise tax imposed on the purchase of a qualified motor vehicle.  In Minnesota that includes:

• 6.5% motor vehicle sales tax that dealers collect and remit to the Deputy Registrar.
• $20 transit tax charged by dealers in 5 counties around the twin cities.
• $20 local excise tax charged on sales of vehicles by dealers located in Baxter, Brainerd, Mankato, New Ulm, Owatonna, and Rochester.

What New Vehicles Qualify for the Deduction?

• Cars, light trucks and SUV’s with a gross vehicle weight of 8500 lbs or less.
• Eligible vehicles sold for under $49,500 qualifies for the full deduction.  Consumers may deduct sales taxes on the first $49,500 of any vehicle purchased above this price.

How about Leases?

• There’s no deduction for sales tax paid on a new vehicle lease.

What Customer Qualify for the Deduction?

• Individual customers with modified adjusted gross income of les the $125,000 or joint filers making les than $250,000 a year in 2009 would qualify for the deduction.
• Deductible as an “above the line” (for itemizers and non-itemizers) deduction on federal tax return.

Effective Date.

• The new sales tax deduction applies to new vehicles purchases made on or after February 17, 2009 though December 31, 2009.