stimulus tax credit car purchase

Earlier this year President Obama signed into law the economic stimulus package. how individual taxpayers are affected by the stimulus bill?

One of the things added to the bill was a temporary provision that allows people who buy new automobiles in 2009 to deduct any state and local sales and excise taxes on that purchase from their taxable income.

stimulus tax credit for Automobile purchase

The following is the details of car tax credit

* Deductions available to purchasers of new cars, light vehicles, RVs or motorcycles in 2009.

* Deduct state and local taxes and any excise taxes charged on the purchase.

* Available to those earning less than $125,000 ($250,000 for joint filers).

* You can deduct the sales tax on the first $49,500 of a car purchase This deduction will be what’s known as an above-the-line deduction, which means you can take it regardless of whether you itemize other deductions on your tax return.

How The Tax Deduction can save your money

Let’s look at a quick example of how the tax deduction would work in the real world. Let’s say you buy a new car for $20,000 this year, and had a trade-in of $9,000. Typically states would tax the difference between the new car and the trade, which in this instance would be $11,000.

At a tax rate of 6.5%, that would mean your deduction in this case would be about $715. Tax rates vary by state, so your deduction will be based on the tax rate in your state.

If you are buying a $20,000 car with no trade, you would reduce your taxable income by $1300 (at our example 6.5% tax rate). The estimated cost of this provision is expected to be around $1.7 billion dollars.

Tax credit for Automobile purchase package Explained

If You Do Buy A New Car, Remember These Things If you do end up buying a new car, it’s important to go in with the right mindset, and with certain goals in mind. Remember these things.

* Don’t get car fever! Take your time, and look for the best deals and research the car you want. You can find a lot of good deals right now, so take the time to find them.

* Negotiate the price. If you get a deal from one dealer, take that dollar amount to another dealer, see if they’ll come down on the price. * Ask for factual information. For example, don’t ask,

“Does it get good gas mileage?” The dealer may consider 10 miles to the gallon to be good mileage, but you won’t. Ask, “How many miles per gallon does it get?”

* Be willing to walk away. Don’t get so set on a certain car that a dealer can sense he’s got you hook line and sinker. If he does, you won’t get as good of a deal.

* Forget the extras. Don’t pay for things that you don’t need like pin striping, special detailing and extended warranties. If you have your full emergency fund in place, it’ll cover any costs you have if the car has problems.

* 2 are better than 1. Take a friend or family member who can help you keep your head. Your friend can also help you to remember details about the car that the dealer tells you, which can help you make your decision.