- During certain tax years, the sales tax you pay towards a new vehicle purchase can be used as a deduction. For instance, cars purchased between February 16, 2009 and January 1, 2010 were eligible for a tax deduction based on the amount of local and sales tax paid. New car, light truck, motor home or motorcycle purchases qualified to receive the tax break. Individual gross incomes above $125,000 and $250,000 for joint filers could not take the deduction.
- Hybrids and diesel car purchases were eligible for a tax deduction on your federal tax return. These types of fuel-efficient vehicles offered the opportunity for purchasers to receive up to $3,400 back on their federal income tax returns. If you bought the vehicle between December 31, 2005 and December 31, 2010, you can claim the tax credit. Form 8910 of the federal tax return must be used to calculate the deduction claimed on your Form 1040.
- Plug-in hybrids and electric vehicles were another type of alternative fuel vehicle that were eligible for tax breaks. Both of these vehicle types can be used to claim a tax credit up to $7,500. The cars must have been bought in 2010 or later to receive the credit. To claim the credit on your Form 1040, you must use Form 8936.
- For certain tax credits, you may need to itemize your deductions. You also need to keep a copy of all payment information regarding the purchase of the vehicle. You may be required to produce a copy of the bill of sale when taking a tax credit or deduction for a new car purchase.
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