Tuesday, July 21, 2009

New Car Tax Deduction/Rebate: Is is worth it?

Currently there are two laws concerning new vehicle purchases that are not for Hybrids. The first is a tax deduction (meaning it will lower your taxable income and not refundable), this deduction is for the sales tax paid on new vehicles (under $49,500) bought after 2/17/09 and before 1/1/10. I have seen a news report on TV were the salesman stated that you will get back the sales tax on your tax return. This is false. You can deduct the sales tax off your taxable income so you will only save your tax rate. (example: you pay $1000 in taxes and you have a 10% tax rate you will save $100 not the full $1000). RV's are included, but only the sales tax on the first $49,500 is duductible. Iowa technically doesn't have a sales tax on autos, but the tax you do pay is deductible none the less.

The second is a separate rebate, and is not on your tax return. The car allowance rebate system is the name of the program and has many limitation to get a maximum of $4,500. They include: Vehicle less than 25 years old, get less than 18 mpg, be drivable and have owned it for 1 year (no going to the junk yard for the trade in) & proof of insurance for that one year!

Both programs are getting some coverage but neither of them is a great deal unless you were already in the market for a new car. You see, cars lose their value very quickly and if you simply wait and buy an ’08 now, or a ’09 after the 2010 models are out, you most likely will save more in the discount then these credits will get you, without jumping through the hoops. It might be bad for the auto makers but my advice is for the consumers and clients and their best interests.

Link to sales tax deduction for more details
Link to “Cash for Clunkers” for all the facts.

Remember to bring in your purchase agreement to get the sales tax deduction on your 2009 tax return.

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