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.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance