Tax Breaks for New Cars
Put yourself in new wheels and get a sales-tax deduction to boot.

Even if you missed out on the “cash for clunkers” government rebate earlier this year, you can still save big by deducting the state and local taxes you pay when you buy a new car, light truck, motor home or motorcycle by December 31. (Sorry -- used vehicles don’t qualify for the sales-tax break.)
The deduction, which you claim when you file your 2009 tax return next spring, is limited to the taxes and fees paid on up to $49,500 of the purchase price of a vehicle, but there is no limit to how many vehicles you can buy. So, for example, a married couple could buy two cars and deduct the sale taxes on both. The break starts phasing out for individuals with incomes of more than $125,000 and disappears at $135,000. It’s available to married couples with incomes of up to $250,000, phasing out at $260,000.
The deduction applies to vehicles purchased from February 17, 2009, through the end of the year. The sales-tax break is set to disappear at year-end and isn’t likely to be extended.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you don’t itemize, you can add the sales-tax amount to your standard deduction. If you itemize, you’ll include the sales tax with your other write-offs. And if you live in one of the five states that don’t impose a state sales tax -- Alaska, Delaware, Montana, New Hampshire and Oregon--you can deduct other fees or taxes on the vehicle purchase imposed by your state or local government, as either an add-on to your standard deduction or an additional itemized deduction.
This break is of no benefit to taxpayers who itemize and choose to deduct state sales taxes instead of state income taxes (a scenario most likely in states that don’t impose an income tax). Even before the new rule took effect, they could deduct the sales tax paid on a car -- new or used -- with no purchase-price limit.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Aging: The Overlooked Risk Factor
Sponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?
AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
2025 SALT Cap Could Hurt Top 'Hidden Home Cost'
Tax Deductions The latest GOP tax bill might make hidden homeowner costs worse for you. Here’s how.
-
Retire in the Bahamas With These Three Tax Benefits
Retirement Taxes Retirement in the Bahamas may be worth considering for high-net-worth individuals who hate paying taxes on income and capital gains.
-
2025 Virginia Tax Rebate Checks Coming Soon? What to Know Now
Tax Rebates Given a historic 2025 gubernatorial race, tax policy will remain a key issue for Virginians in the months ahead.
-
Summer Backyard Ideas With Added Tax Benefits for 2025
Tax Tips Find out how these summer 2025 home projects can help you save on taxes next year.
-
Coverdell ESAs vs. 529 Plans: Which Should You Choose?
Savings Accounts These savings accounts can offer tax benefits for school and retirement expenses. Here’s how.
-
Homeschoolers Could Soon Save on Expenses With 529 Plans
Savings Accounts A new House GOP bill could change how you save for your child's homeschool education. Find out how.
-
Five ‘Big Beautiful Bill’ Tax Changes to Watch in the Senate
Tax Policy The House passed its version of Trump’s "One Big, Beautiful Bill." Here’s what to look for as Senate Republicans take up the mega legislation.
-
New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify
Tax Breaks To fulfill Trump's campaign promise, GOP lawmakers want to offer a tax deduction for car loan interest. How would it work?