Taxpayers who purchase a new vehicle in 2009 may qualify for the new “Vehicle Sales & Excise Tax Deduction” that is part of the American Recovery and Reinvestment Act (ARRA) of 2009.

The IRS sent out “IRS Tax Tip 2010-26, dated February 8, 2010, to highlight a number of important issues related to this special deduction. These issues are outlined below:

1) To qualify, the vehicle (new cars, light trucks, motor homes and motorcycles) must weigh 8,500 pounds or less, though new motor homes are not subject to the weight limit.

2) The state and local Sales and Excise taxes paid are deductible up to a maximum purchase price of $49,500 and the purchase must take place between February 16, 2009, and January 1, 2010.

3) Taxpayers in states without a Sales Tax (Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon) may be allowed to deduct other, qualifying fees or taxes assessed by the local or state governments. To qualify for the deduction, the fees or taxes must be assessed on the purchase price of the vehicle or as a “per unit fee” at the time of purchase.

4) Taxpayers can take this deduction whether or not they itemize their deductions. Those taxpayers not itemizing can add the amount of the Vehicle Sales and Excise Tax Deduction, calculated based on the vehicle’s purchase price, to their standard deduction on their 2009 federal tax return and should complete the “Standard Deduction for Certain Filers” (Form 1040 Schedule L).

5) The deduction is phased out for individual taxpayers with Modified Adjusted Gross Income (MAGI) between $125,000 and $135,000 and for joint filers with a MAGI between $250,000 and $260,000.

For more information on this deduction, see the American Recovery and Reinvestment Act (ARRA) of 2009 (www.irs.gov/recovery). Taxpayers should also consult with CPAs, professional tax preparers or other tax practitioners for advice concerning their specific tax situation.

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