Fredrick James-Educating the Masses to Help You Save On Taxes

Hang on, it's not too late to catch the new car deduction boat!

If you missed the mad rush to take advantage of the Cash for Clunkers program this year but you still need to buy a car, don’t fret, you might still be able to get a bit of cash back on your taxes!

Instead of the cash for trade-in you may be able, instead, to deduct the sales tax on the purchase of a qualified new car thanks to the American Recovery and Reinvestment Act. ARRA allows taxpayers to deduct the sales tax up to $49,500 of the purchase price of a new (first owner) vehicle whether it is a domestic or foreign model.

For example: You live in an area where the sales and local tax rate is 5% and you make a qualified purchase of a vehicle costing $40,000. In this example your deduction would be $2,000.

In the past few years this sales tax deduction HAS been available to qualified taxpayers who itemize their deductions (these tax payers generally have home mortgage interest, real estate taxes and other itemized deductions). The past Vehicle Sales Tax Deduction was NOT AVAILABLE to taxpayers who claimed the standard deduction.

Here’s the beauty of the 2009 Vehicle Sales Tax Deduction: If you purchase a qualified vehicle and fall within the parameters set up by the American Recovery and Reinvestment Act you are eligible to take a 2009 Vehicle Sales Tax Deduction even if you DO NOT itemize and claim the standard deduction!

What if my state does not have sales tax?

In states that don’t have a sales tax, the law provides a deduction for other taxes or fees paid. Please consult with your tax advisor for more information.

What’s the Catch?

1. In general, the American Recovery and Reinvestment Act stipulates that the 2009 Vehicle Sales Tax Deduction is limited to $49,500 of your vehicles purchase price.
2. Also, the deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. If your MAGI falls in-between the two amounts there are phase-out’s on the deduction.
3. Taxpayers with higher incomes do not qualify for the 2009 Vehicle Sales Tax Deduction.
4. This deduction is for new cars, new light trucks, new motorcycles and new motor homes (You MUST be the first owner). This means that if you happen to find a great deal at a dealers lot on a 2008 model, as long as you are that vehicles first owner, the purchase meets that specific criteria.
5. Also, if you purchase multiple qualified vehicles and you qualify for the deduction, there is no limit on the deduction!
6. You must purchase the qualified vehicle after February 16, 2009 and before January 1, 2010.
7. This deduction is only for personal 2009 tax returns.

For more detailed information please go to the www.IRS.gov. As always, please consult with your tax advisor. Your situation is unique and he or she will look at this specific deduction in relation to your specific tax plan. If you don’t have an advisor, you’re welcome to call our office to schedule an appointment for a phone consult (if you’re outside of the Tampa Bay area) or personal consult at our Clearwaer office.

_{Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money since 1999. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida. Visit our website www.FredrickJames.com or call 727-474-0922 for more information}