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Before You Buy, Study Rules for New Tax Credits

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By Michelle Singletary
Thursday, February 26, 2009

I hosted an online discussion recently and one of the participants was particularly perturbed because he had purchased a new car on President's Day, Feb. 16.

Had he waited just one day, he would have qualified for a tax break that allows new car buyers to deduct state, local sales and excise taxes on their federal returns.

The deduction is available only for taxpayers who purchased new vehicles on or after Feb. 17 -- when President Barack Obama signed the American Recovery and Reinvestment Act of 2009, better known as the economic stimulus plan.

"I feel duped," the person wrote during the chat. "The reason I decided on new versus used was because of the tax credit. I thought I would qualify . . . as the dealer told me. I would have waited a day to save the $2,000."

Duped?

I don't think so. It's not the dealer's fault this person missed out on the credit. The dealer may have believed the buyer would qualify for the tax break. And the buyer would have, had Obama signed the bill by President's Day as was originally planned. But he didn't.

There's a lesson for this car buyer and a lot of people confused about various things in the stimulus plan. You need to separate fact from hearsay when it comes to the law. Here are some questions I've received from readers doing just that:

QWhat are the exact dates covered for the tax deduction for sales taxes on new cars bought in 2009?

AThe deduction for state, local sales and excise taxes on new cars, light trucks, motor homes and motorcycles is allowed from Feb. 17 through Dec. 31, 2009. The deduction is phased out for joint filers with modified adjusted gross income of $250,000 to $260,000. For other taxpayers, it's phased out if your modified adjusted gross income is $125,000 to $135,000.

I am about to buy a new car that I have negotiated from $56,410 to $49,900. Do I have to pay $49,500 or below for a vehicle to get the car sales tax deduction?


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