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Use tax deduction available on new cars until Dec. 31 as a selling tool

November 16, 2010

The "cash for clunkers" program grabbed the headlines earlier this year. But another government program in effect till Dec. 31 can put money in the pockets of new-car buyers.

The American Recovery and Reinvestment Act, in effect since February, gives consumers incentive to buy a new vehicle now. Many car buyers can deduct state and local taxes paid on the purchase of a new passenger vehicle from their federal income tax.

Deductions are allowed for:

• the first $49,500 of a vehicle’s purchase price;
• vehicles that weigh less than 8,500 pounds; and
• taxpayers whose modified gross income is under $125,000 for individuals or $250,000 for jointly files returns.

The tax deduction can be claimed on a new vehicle of any model year—when the original use commences with the taxpayer.