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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Are You Middle-Class? Here's The Most Tax-Friendly State For Your FamilyTax Tips We found the state with no income tax, low property tax bills, and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for YouHealth Savings Even with the promise of ‘triple tax benefits,’ a health savings account might not be the best health plan option for everyone.
