Posted On: February 18, 2010
Did you know you can deduct the sales tax you paid for your car?
Did you know you can deduct some or all of the sales tax you paid when you bought your car last year? If you bought your car between February 16, 2009 and December 31, 2009, you can deduct the sale tax, limited up to $49,500 of the purchase price, you paid for your vehicle. For example, if your car cost $20,000, you could deduct all the sales tax paid for that vehicle. However, if your vehicle cost $60,000, you could only deduct 83% of your sales tax because you are limited to the amount of the tax you paid on $49,500.This deduction is available for individuals with incomes of $125,000 or less or married couples filing jointly with incomes of $250,000 or less. The deduction phases out and is not available for individuals with incomes greater than $135,000 or $260,000 for married couples filing jointly.
Remember, this is a deduction and not a tax credit. A deduction reduces the amount of taxable income you have whereas a credit reduces the amount of tax you owe. For example, if you have a $1000 deduction and you made $50,000 in taxable income last year, you would report only $49,000 of income. Whereas if you had a $1000 tax credit and after all the calculations, the IRS said you owed them taxes of $1001, you would only owe them $1 since the credit reduced the actual tax bill.
If you think this deduction is applicable to you or you want to know more about other possible deductions, please consult with a tax professional in regards to your tax needs.
