As many Americans are aware, the economic stimulus package signed by Barack Obama on February 17, 2009 authorized a tax break for new automobile purchases made in 2009.
2009 Federal Car Tax Rebate
The tax break, as described in the American Recovery and Reinvestment Act of 2009, is a federal tax deduction of state and local sales & excise taxes paid toward the purchase of qualifying vehicles between February 17th and December 31st.
2009 Obama Car Tax Rebate- What about States with No Sales Tax?
The fact that the new car tax rebate is based on state sales taxes is perplexing to the Americans who live in states without sales taxes. Do they qualify for the new car tax rebate or is the deduction only available to those who happen to live in states with sales tax?
In response to this conundrum, IRS announced (in IR-2009-60) that the new car tax break is also available on automobile purchases made in states with no sales tax. According to the IRS, taxpayers in states that do not collect sales taxes may deduct “other fees or taxes imposed by the state or local government” on their 2009 individual income tax return.
New Automobile Purchases- Which States Do Not Have Sales Tax?
The following states do not charge state sales tax: Alaska, Delaware, Hawaii, Montana, New Hampshire, Oregon.
What qualifies as “other fees or taxes?” The IRS does not specify exactly what other kinds of fees and taxes fall into this category. Like the sales taxes that other individuals can deduct, these alternate fees and taxes must be based on the automobile’s sales price. The announcement also mentions that individuals can deduct per unit fees.
Cash Back on 2009 New Vehicle Purchases Meant for All Americans
In IR-2009-60, IRS Commissioner Doug Shulman noted, “This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax.” The assumption behind this rule clarification is that the United States Congress ultimately meant for residents of all states to be able to take advantage of the new car tax rebate.
U.S. taxpayers who live in states without sales tax can rest assured that they are also eligible for the new car tax rebate. However, those individuals should consult a tax advisor as to exactly which taxes and fees will be deductible. Car dealership personnel are not an appropriate source of tax advice.
U.S. Federal Government Car Tax Deduction- More Information
Individuals should keep in mind that regardless of whether the tax deduction is based on sales taxes, excise taxes, or other taxes and fees, only amounts assessed on the first $49,500 of the vehicle’s purchase price are deductible.
The following articles provide further information on this United States government stimulus measure:
New Car Tax Rebate- Obama Economic Stimulus Plan – Find out the difference between a car tax credit and deduction, which automobiles qualify for this tax break, and other limitations as stated in the American Recovery & Reinvestment Act of 2009.
2009 Car Tax Deduction for Automobile Purchase – Learn the date of enactment and the last day to purchase an automobile and still qualify for cash back.
Resources:
American Recovery & Reinvestment Act of 2009
IRS website, irs.gov
Journal of Accountancy online
United States Treasury website, ustreas.gov
Lena Gott - Lena Gott is a Certified Public Accountant who gives practical financial advice to her readers.
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