Every year changes are introduced in the tax codes. The sales tax deduction offered to people who buy a new car is offers significant benefits specifically against the gloomy economic backdrop. This will not only help to ease the financial burden of individuals but it would be a great boost for the automobile industry. More people now are opting to search new cars and use it as a tool for tax planning for 2009. The new passenger vehicle is entitled to deduct the state, local sales tax and excise paid on the purchase. The bill was passed in February and has many other useful as well as simple provisions as well as useful provisions.
The salient features
* The new car, light truck, motor home or motorcycle should be bought before 1st January 2010.
* The deduction is applicable only for new car purchase.
* The maximum price should be $49,500
* So if one has a new luxury car costing over $49,500 the relief is only on the first $49,500. So even if the car is costing say $60,000 the tax benefit is available only on the set limit.
This was a good enough reason for individuals to buy a new car and reduce tax burden. It also rejuvenated new car industry and this became an added sales promotion tool besides new car discounts offered by manufacturers and dealerships.
How it works?
The percentage of tax deduction varies from one state to another. So one has to calculate the deduction based upon the state applicable rate. For example the sales tax in California is 9.25%. So when one purchases a new car worth $30,000, the sales tax would be $2,775. This amount of $ 2,775 is deducted from the taxable income for 2009 of that individual. So if one has an annual income of $ 50,000, the new car sales tax of $2,775 would be deducted and one is liable to pay tax on the difference which is $ 47,225. There is a straight reduction in the taxable income. This is being considered as a big benefit over and above new car discounts that one gets on the purchase.
Who qualifies?
This tax benefit or incentive on purchase on new car is available to
* Individual who make less than $125,000
* Couples earning below $250,000 in total.
* For individuals who earn less than $135,000
* It is offered to both itemizes and non-itemizes
This kind of cash incentive is available in the next returns and helps save extra and that may be useful in the next car purchase or to pay up insurance to the car insurance company.
The salient features
* The new car, light truck, motor home or motorcycle should be bought before 1st January 2010.
* The deduction is applicable only for new car purchase.
* The maximum price should be $49,500
* So if one has a new luxury car costing over $49,500 the relief is only on the first $49,500. So even if the car is costing say $60,000 the tax benefit is available only on the set limit.
This was a good enough reason for individuals to buy a new car and reduce tax burden. It also rejuvenated new car industry and this became an added sales promotion tool besides new car discounts offered by manufacturers and dealerships.
How it works?
The percentage of tax deduction varies from one state to another. So one has to calculate the deduction based upon the state applicable rate. For example the sales tax in California is 9.25%. So when one purchases a new car worth $30,000, the sales tax would be $2,775. This amount of $ 2,775 is deducted from the taxable income for 2009 of that individual. So if one has an annual income of $ 50,000, the new car sales tax of $2,775 would be deducted and one is liable to pay tax on the difference which is $ 47,225. There is a straight reduction in the taxable income. This is being considered as a big benefit over and above new car discounts that one gets on the purchase.
Who qualifies?
This tax benefit or incentive on purchase on new car is available to
* Individual who make less than $125,000
* Couples earning below $250,000 in total.
* For individuals who earn less than $135,000
* It is offered to both itemizes and non-itemizes
This kind of cash incentive is available in the next returns and helps save extra and that may be useful in the next car purchase or to pay up insurance to the car insurance company.
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