With all the confusion over government bailouts, bankruptcies, emerging alternative-fuel and electric cars, many are opting to wait until the dust settles before making their next car purchase.
Unfortunately this ‘wait and see’ attitude has worsened the situation for struggling automakers and may be prolonging the time it will take the industry and the U.S. economy as a whole to recover from the current economic downturn.
In an effort to nudge hesitant buyers back to dealer showrooms, the economic-stimulus package includes significant tax breaks for new car buyers who act by the end of the year.
Beginning on February 17 of this year, buyers of new cars, light trucks, motor homes and motorcycles can write off certain taxes on up to $49,500 of their new purchase. Qualifying Federal tax deductions include both state and local taxes as well as excise taxes.
As with any such program, buyers are required to meet certain criteria, and the deductions do not apply to used-car purchases. Single taxpayers with adjusted gross incomes under $125,000 and married couples with adjusted gross incomes under $250,000 who file jointly may deduct 100% of state and local taxes paid on their new vehicle.
Deduction amounts are gradually ‘phased out’ for single filers with an AGI of between $125,000 and $135,000 and married couples filing jointly on adjusted gross incomes of between $250,000 and $260,000.
Individual tax filers reporting an AGI over $135,000 and joint filers reporting over $260,000 do not qualify for any deductions.
New-car buyers who meet these criteria may claim the deduction on their 2009 federal income tax return regardless of whether they itemize or claim the standard deduction.
For those who live in states that levy sales taxes, they may not ‘double dip’ by claiming state taxes paid on their new purchase and also claiming the federal deduction.
Residents of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon, which do not have state sales taxes, still qualify for a deduction if their state levies excise taxes in the form of flat fees based on purchase prices.
Sweetening the deal for new car buyers is the fact that many dealerships are offering additional incentives in response to the slow market and in preparation for the arrival of 2010 models on their lots in just a few months.
If you’ve been considering purchasing a new vehicle, despite all the uncertainty in the industry and the economy, now may be the ideal time to buy.