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Buying & Leasing a Car

Tax Break for Car Buyers Expanded

Six states that had been excluded are now eligible for the stimulus special.

Uncle Sam is doing his part to help consumers in six states do their part to help beleaguered automakers, dealers and parts makers.The industry can use the help. New-vehicle sales in 2009 will be a puny 9.5 million, the worst in around 20 years. Next year won't be a banner year, either, with about 13.5 million new cars, trucks and SUVs sold off of dealer lots. That's down 20% from the 17 million sold annually during several years earlier in this decade.

A special tax deduction will be given to new-car buyers in Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon. The deduction is available in those states because they don't impose sales taxes or transfer fees on the purchase of new vehicles. This puts would-be buyers in these states on the same footing as consumers elsewhere who have been able to take advantage of a similar tax break since Feb. 17, when Congress passed the $787-billion economic stimulus package. Now consumers in all 50 states can deduct state and local taxes and fees for vehicles bought between Feb. 17 and Dec. 31. It's available whether deductions are itemized but can be claimed only for 2009.

In their haste to enact the pump priming measure, lawmakers authorized only new-car sales tax rebates. Effective June 11, Treasury cut some slack for consumers living in states that impose a fee on auto dealers for each new vehicle they sell. New-car buyers can claim a rebate on these fees, which dealers pass along as part of the final sales price. The claim can be retroactive to Feb. 17. The fees are not small potatoes, often exceeding 4% of the sticker price, matching new-vehicle sales tax rates in many other states.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual tax filers and between $250,000 and $260,000 for joint filers.

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