New Car Tax Incentive

With the deadline to file taxes behind us and the reality of paying 3-4 months of our hard-earned money has settled in, there appears to be a silver lining for those wishing to purchase a new car.  The new car tax break recently enacted by Congress hopes to stimulate new car sales and ease the burden on those who wish to purchase a new car. 

Since Congress passed the 1,588-page stimulus bill in February, there have been many nonsensical provisions (I'm talking to you digital-TV coupons) among the several useful provisions.  One part of the stimulus package that hopes to aid both the auto industry and the consumer is the income-tax deduction of state sales tax for new cars purchased before January 1, 2010.  The tax deduction is good for new cars only, with a max price of $49,500.  Any new car that exceeds the $49,500 sticker price will only get taxable relief on the first $49,500. So if you purchase a Mercedes-Benz CLK-Class for $60,000, you would only get a tax break on $49,500 of it, which in California would be a $4578.75 tax deduction.  For an interactive list of cars that cost under $50,000, check out the Car Chooser.

That's swell news, but how exactly does this all work?  Well, it depends on your state's sales tax and that percentage varies from state to state.  Let's say that you live in California and the sales tax is 9.25%.  If the car you plan to purchase is $28,000, the sales tax would be $2,590.  That $2,590 would be deducted from your taxable income for 2009.  If you make $40,000 annually and the state sales tax on your new car is $2,590, you will only be taxed on the difference, which comes to $37,410. So when you buy a new car, you won't be getting a tax credit in the mail--you will simply reduce your taxable income by the amount of state sales tax on your new car. 

This incentive is available for individuals who make less than $125,000 and couples who make less than $250,000 combined. It won't help you afford that new car now, but it will put a few extra dollars in your pocket next April.  Find additional up-to-date rebates and incentives for every new car at the Rebate Center at NewCars.com and maximize your savings today!