By JC Leahy, MA Accounting
Maximum Legal Refund (tm)
Income Tax Preparation & Consulting
Silver Spring, MD 20905
If you would like help preparing your income tax returns, email firstname.lastname@example.org or phone (301)537-5365
If you bought a new vehicle in 2009, you need to be aware of this brand-new tax deduction. Before 2009, you had a choice between deducting state income taxes and state sales taxes. You could not deduct both. You also had to itemize your dedictuions to claim either. However, for 2009, if you bought a qualifying vehicle after February 17, you can deduct state income taxes PLUS the sales tax on your new vehicle. And you DO NOT have to itemized deductions to benefit from this one, because if you don't itemize, the deduction will be added to your standard deduction!!!! To qualify, a motor vehicle must be new. It must have a gross vehicle wiight of not more than 8,500 pounds. It must be model year 2009 or 2010. Only tax on the first $49,000 per vehicle of purchase price is eligible, Motorcycles, motor homes, and RV's qualify, as well as cars. As far as I know, there is not gross vehicle weight restriction on motor homes and RV's.
Congress takes this benefit away if you make too much money. This is called phaseout. It's a little tricky. Phaseout occurs in 2 stages. First there is what I call the "direct" phaseout, which is primary because it applies directly to this particular deduction. Whaetever is left after that is subject to a "indirect" phaseout as a part of total itemized deductions. The "primary" phaseout of the Vehicle Sales Tax Deduction occurs from $250,000 to $260,000 for married-filing-jointly taxpayers, and $125,000 to $135,000 for everyone else. The indirect phaseout is not referred to as a phaseout by the Tax Code. It is called a "reduction." The reduction of itemized deductions starts at $166,000 for married filing jointly, and $83,400 for all others. The reduction is based on 3% of the excess over the $166,000/$83,400 thresholds, but the exact computation is so complex you have to fill out a worksheet to figure it out. Those claiming the standard deduction don't face a reduction of standard deduction based on level of income. (They do, however, face the reduction of personal exemptions -- which is another article for another day.)
Bottom line: If you bought a new car, motorcycle, truck, motor home or RV in 2009, make sure you take the deduction on your tax return!!
Questions? Leave them as comments to this article.
If you would like help preparing your income tax return, e-mail email@example.com or phone (301)537-5365