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Tax dilemma for new car buyers

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in Small Business Tax,Small Business Tax Deduction Strategies

If you bought a new car in 2009, get out your calculator: Your tax deduction choices are more complicated this year.

Here’s why:
Under the new economic stimulus law, you can deduct sales and excise taxes attributable to the first $49,500 of the cost of a qualified motor vehicle purchased after Feb. 16, 2009, and before Jan. 1, 2010. But you can’t claim this deduction if you opt for the deduction for general state and local sales taxes instead of deducting state and local income taxes.

In most cases, you’ll come out ahead with the combination of the state income tax and new car sales tax deduction. But that’s not necessarily true if you live in a state with a no or low income tax or if the vehicle costs significantly more than $49,500.

Note also that the new car sales and excise tax deduction phases out for single filers with a MAGI above $125,000, and joint filers above $250,000.  

Tip: Use the worksheet on page A-4 of your Form 1040 package, or go online at, to help figure out your options.

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