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New deduction for sales taxes on a new car purchase

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The American Recovery and Reinvestment Act of 2009 provides that for vehicles purchased on or after February 17, 2009 and before January 1, 2010 you can deduct, as an itemized deduction or as an addition to the standard deduction, sales taxes on the purchase of a qualifying new vehicle -- on the first $49,500 of the purchase price. Qualifying vehicles include the following.

  • A passenger car, light truck, or motorcycle the gross vehicle weight rating of which is not more than 8,500 pounds.
  • A motorhome.

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The Stimulus Plan and New Car Sales

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Last month, President Obama signed the "American Recovery and Reinvestment Act of 2009" -- otherwise known as the economic stimulus act. We're like most tax professionals in that we're still sorting through the Act's nearly $300 billion in tax cuts to see which will be most valuable for you. But we can tell you that it will take careful planning to make the most of the new rules. For better or for worse, the new administration doesn't seem to be making "tax simplification" much of a priority.

Take the new deduction for sales tax on new cars. The concept is simple enough. The auto industry is a huge part of our economy. Car sales have slowed to the point where General Motors stock costs less than a gallon of gas and carmakers are flirting with bankruptcy. Why not give car buyers a tax incentive to stimulate manufacturers?

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Higher, More Complicated Taxes Ahead

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Last week, President Obama released his first budget proposal for Fiscal Year 2010. Most of the attention has focused on total spending ($3.55 trillion) and the total deficit ($1.75 trillion). However, the budget includes several tax provisions that are worth discussing now, especially for those of you who qualify as “wealthy."

Specifically, Obama proposes to let the Bush tax cuts expire for individuals making over $200,000 and households making over $250,000. This means that "marginal" rates (the rate you pay on your last dollar of income) would climb from their current 35% back up to 39.6%. Tax on long-term capital gains (gains from the sale of property you hold more than 12 months) would climb from their current 15% back up to 20%.

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Stimulus Plan Tax Highlights

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You don't live "off the grid," so you know that last month President Obama signed the "American Recovery and Reinvestment Act." While much of the news focuses on the spending provisions, it also includes $287 billion in tax cuts.

I’m writing this week to make sure you don’t miss any of the highlights. Here are the most important provisions:

  • A new refundable "Making Work Pay" credit for 2009-2010 to offset the first $400 of Social Security tax you pay ($800 for joint filers). It phases out as your "adjusted gross income" (AGI) tops $75,000 ($150,000 for joint filers).