New Motor Vehicle Tax Deduction

The stimulus act signed into law by President Obama, on Feb. 17, called the American Recovery and Reinvestment Act of 2009, allows an itemized deduction for state or local sales or excise taxes on the purchase of a new motor vehicle between 2/17/2009 and 12/31/2009. The deduction is the amount of taxes on up to $49,500 of the purchase price of a passenger automobile, light truck or motorcycle (gross vehicle rating not more than 8,500 pounds), or a motor home. Even taxpayers who claim the standard deduction can use this deduction in addition to the standard deduction. Taxpayers with Modified Adjusted Gross Income (MAGI) over $125,000 ($250,000 married filing jointly) get reduced or no benefit. Unlike other state/local tax deductions, this one is allowed for AMT. However, the deduction is not available to a taxpayer who elects to deduct state and local sales and use taxes in lieu of income taxes as an itemized deduction.