IRS announces additional tax break for new car purchases

The Internal Revenue Service has announced that taxpayers who buy a new passenger vehicle during 2009 may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

This deduction will be an above-the-line tax deduction, so non-itemizers can take the deduction. Furthermore, there is no association between this deduction and the calculation for state and local income tax or general sales tax deductions on Schedule A.

"For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year," said IRS Commissioner Doug Shulman. "This deduction enables taxpayers to buy now and get cash back later on their tax returns."

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home, or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after February 16, 2009, and before January 1, 2010, to qualify for the deduction.

The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns.