Small Business Taxes & Management

Special Report

Sales Tax Deduction for New Auto Purchase


Small Business Taxes & ManagementTM--Copyright 2009, A/N Group, Inc.


If you missed the "cash for clunkers" deals, all is not lost. There is still some time left to cash in on the government stimulus. This time it's in the form of a tax deduction. You can deduct the sales tax on the purchase of a qualified motor vehicle. The deduction applies whether you itemize (you take the deduction in addition to your regular income tax deduction) or you take the standard deduction. As always, a number of restrictions, special conditions, etc. apply. Here's the list:

If you deduct sales tax as an itemized deduction instead of income taxes, you may add the tax on the vehicle to your sales tax table amount, but you can't double dip by adding the vehicle sales tax as a separate item.

Is it worth it? If you're already planning to replace your auto within the next year, probably. A 6 percent sales tax on a $30,000 auto would result in a $1,800 deduction. If you're in the 25 percent bracket, that's a $450 tax saving. If you're in a higher bracket and/or the sales tax rate in your state is higher, the savings will be more; conversely, if you're in a lower bracket and/or the sales tax rate is lower, the savings will be less.

You should also consider the auto market. While sales could remain lackluster for some time (meaning sales incentives may be around for some time), some deals may disappear after the new year.


Copyright 2009 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 10/30/09