NEW CAR SALES TAX DEDUCTION

Can you deduct the sales tax paid if you leased a new car in 2009?

Terry

Terry, if you’re referring to the new car sales tax deduction, leases are specifically excluded. Sorry.

Larry Kopsa CPA

MORE INFORMATION ON CASH FOR CLUNKERS

I read your post about getting cash for my old vehicle. Can you give me any more information on that?

Adam

Adam, I have attached the information that I have on what they call Cash for Clunkers. Normally I don’t like to post long answers, so here is a link to the whole enchilada on our website: "Cash For Clunkers" Legislation in Effect.

UNLIMITED NUMBER OF VEHICLES MAY QUALIFY FOR NEW SALES TAX DEDUCTION (Which posting will this change?)

An IRS spokesperson says that the new deduction for sales taxes on a qualifying motor vehicle is not limited to taxes paid or incurred on a single vehicle. Rather, taxes paid or incurred on two or more vehicles may qualify for the deduction.

TAX BREAKS ON ELECTRIC VEHICLES

There are tax breaks available for taxpayers who purchase qualified plug-in electric vehicles. Check out the article on the IRS website at: http://www.irs.gov/newsroom/article/0,,id=207051,00.html.

CASH FOR CLUNKERS - BILL INTRODUCED TO HELP THE CAR INDUSTRY

'Cash-for-clunkers offered to drive new-car sales'

(The Washington Post/journalstar.com) -- The Washington Post reports that some in the United States are looking at plan in which the "German government offered drivers a few thousand dollars to scrap their old cars and buy new ones" -- a plan that lead to a 21% jump in new car sales. "Rep. Betty Sutton, D-Ohio, introduced" the bill, which proposes to have "the government buy cars and trucks that are at least eight years old and send them to the scrap heap or to be recycled for parts and materials." "Owners would receive vouchers worth $3,000 to $7,500 to buy more fuel-efficient North American vehicles or use mass transit." New cars would need to get at least 27 miles per gallon on the highway, while trucks would need to get at least 24 mpg. "The better the fuel efficiency, the bigger the payout. And the sticker price on the new car can be no more than $35,000." See more at <http://journalstar.com/articles/2009/03/23/news/business/doc49c40b5c2c0af768623074.txt>

ANOTHER QUESTION ON THE NEW PERSONAL AUTO TAX DEDUCTION

Larry, can the deduction be claimed for more than one vehicle?

Connie

Connie, this is a very good question. Your question only goes to prove just how complicated the tax code is.

Here is the best that I can do. The Code and legislative history are not clear on this. The deduction is allowed for “qualified motor vehicle taxes.” This term means “any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle.” One could argue that the use of “a” as opposed to “any” or “one or more” suggests that the deduction is allowed only with respect to one vehicle. The dollar limitation seems to confirm this in that it too uses “a” in its language. Specifically, it says that “[t]he amount of any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle...shall not exceed the portion of such tax attributable to so much of the purchase price as does not exceed $49,500.”

On the other hand, one could argue that “a” being an indefinite article (according to my old English teacher Miss Kolar) shouldn't be interpreted as “one.” But if the deduction were available for two (or more vehicles), the $49,500 limitation would produce an anomalous result—an individual buying two cars each costing $49,500 could deduct the taxes on both, whereas another individual buying one car costing $99,000 could only deduct the tax on the first $49,500.

Thus, the better view seems to be that the deduction is limited to the tax on one qualified motor vehicle subject to the applicable limitations.But IRS guidance will have to resolve the matter. I will let you know if they figure out what the word "a" means.

Larry Kopsa CPA

WOULD YOU BUY A $2,000 CAR?

'World's cheapest car is launched; less than $2,000 per vehicle'

(BBC) -- The BBC reports that "the Tata Nano, the world's cheapest car, is being launched in India" for the retail price of just $1,979. "Tata hopes the 10 feet long, five-seater car will be cheap enough to encourage millions of Indians to trade up from their motorcycles." ... 'I think we are at the gates of offering a new form of transport to the people of India and later, I hope, other markets elsewhere in the world,'" a Tata official said. See the full story at <http://news.bbc.co.uk/2/hi/business/7957671.stm>

TWO MORE QUESTIONS ON NEW VEHICLE PURCHASES

Larry, thanks for all the information. I purchased a new vehicle for my business. Do I still get the new deduction that you talked about?

Terry

No. The new deduction is just for personal vehicles. You are already getting the deduction on your business return.

Larry Kopsa CPA


Larry, I purchased a new car in March. I am estimating that it will be 60% business and 40% personal. Can I still get the new deduction?

Cam

There has been no guidance from the IRS so I cannot be sure but my best guess is that you would get to take 40% of the taxes as a deduction. I will watch for more guidance from the IRS and let you know.

Larry Kopsa CPA

WHAT VEHICLES QUALIFY FOR THE HYBRID TAX CREDIT?

Can you tell me what vehicles qualify for the hybrid tax credit? I can't seem to find the answer anyplace.

Wayne

Wayne, I am glad to answer your question. Beware that this list may change from time to time depending on the number of vehicles sold. To be sure the vehicle that you are looking at still qualifies, you can find the list by searching the IRS website, or you could simply contact the various auto manufacturers.

First, a little background and the rules. The Energy Policy Act of 2005 created a credit for taxpayers who purchase certain energy efficient vehicles, including Qualified Hybrid vehicles.

Generally, for a qualified hybrid vehicle, a taxpayer may rely on the manufacturer’s certification that a specific make, model and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies.

Even though a manufacturer has certified a vehicle, a taxpayer must meet the following requirements to qualify for the credit.

• The vehicle must be placed in service after 12-31-05 and purchased on or before 12-31-10.
• The original use of the vehicle must begin with the taxpayer claiming the credit.
• The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.
• The vehicle must be acquired for use or lease by the taxpayer claiming the credit.
• The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
• For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.
• The vehicle must be used predominantly within the United States.
• The following passenger vehicles and light trucks have been certified for the hybrid tax credit in the following amounts.

Qualified Cars and Credit Amounts (click the link below)
Model Year 2010
Model Year 2009
Model Year 2008

TAX BREAK FOR NEW CAR PURCHASES

I have gotten several questions on the new tax break for new car purchases. I think that the following summary should answer all of the questions.

Taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year. The deduction enables taxpayers to buy now and get cash back later on their tax returns.

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new (not used) car, light truck, motor home or motorcycle.

But like many tax breaks, 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.In addition the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The deduction may not be taken on 2008 tax returns.

Larry Kopsa CPA