New Car Buyers in States With No Sales Tax Can Still Take Sales Tax Deduction


On June 10, the IRS announced that new car buyers in states with no sales tax are entitled to take the new car sales tax deduction under IRC § 164(b)(6) (IR-2009-60).

 

The American Recovery and Reinvestment Act of 2009 introduced a deduction for taxpayers who buy new cars, light trucks, motor homes or motorcycles between Feb. 17 and the end of this year. Buyers may deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of a new vehicle’s purchase price for both regular tax and AMT purposes. The deduction is phased out for single taxpayers with MAGI in excess of $125,000 for the tax year ($250,000 for joint filers).

 

The IRS has determined that new car purchases made in states without a sales tax can qualify for the deduction. Purchasers in those states are entitled to a deduction for other fees or taxes imposed by the state or local government.

 

The states that do not charge a sales tax are Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

 

Even nonitemizers can take this deduction by adding it to the amount of their standard deduction. However, taxpayers who elect under section 164(b)(5) to take the state and local sales tax deduction in lieu of deducting state and local income taxes cannot also take the new car sales tax deduction.

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

QUIZ

News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.