Filing Taxes? Keep In Mind Auto-Related Tax Breaks

toyota-camry-hybrid-2-bigYou bought a car last year and that monthly payment is causing pangs of buyer’s remorse. Take heart — that new car could lead you to a refund this tax season. That’s because taxpayers who bought new vehicles in 2009 are eligible for deductions or credits that could help cut their tax bills or boost their return. Here’s what you need to know. Sales tax deduction. Tucked within last year’s economic recovery act is a provision that allows buyers of new vehicles to deduct state and local sales and excise taxes. Those who bought a vehicle between Feb. 17 and Dec. 31, 2009 are eligible.

Most types of vehicles qualify — cars, trucks, motorcycles and motor homes all count. But if your new ride last year was a pricey luxury car, your deduction could be capped. Filers can only claim a deduction for taxes paid on up to $49,500 of the sales price.

So on a $25,000 car bought in a state where the applicable taxes come to eight percent, that entitles you $2,000 deduction.

But your deduction will be smaller if you earn between $125,000 and $135,000 a year, or between $250,000 and $260,000 for married couples filing together. The deduction is eliminated for individuals earning more than $135,000 and for joint filers earning more than $260,000.

The tax break is also available for people living in states with no sales tax, which includes Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon. Filers in these states can simply deduct other fees or taxes imposed by state or local governments, such as a city-wide sales tax.

The deduction is available regardless of whether you itemize your returns. Taxpayers who do not itemize can simply add the tax break to their standard deduction on their 2009 return.

The decision to itemize or not will depend on your income. Most tax preparation software and any tax adviser should be able to help you make the decision, said David Sands, tax partner at the New York accounting firm Buchbinder Tunick & Co.

“I recommend that people really work it both ways and see what works better for them,” he said. Read full article in APP.

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