There have been many credits recently added to the tax code for new car buyers. The federal government is trying to help the car manufacturers and the environment simultaneously by offering deep tax credits for eco-friendly auto purchases.
You can deduct both state and local taxes for new cars purchased between February 16, 2009 and December 31, 2009. In order to qualify, single tax payers must have an Adjusted Gross Income under $125,000 and married couples must have an AGI under $250,000.
The new plug-in hybrids are coming and tax incentives to buy these strictly battery powered cars are big. If you purchase one of the hybrids that run only on battery power, you can get a tax credit from $2500 -$7500. The only catch is that you must be among the first 250,000 buyers. After that, the incentive decreases.
When you are budgeting to purchase a new car, don’t forget to factor in the sales tax and registration fees. Sometimes people forget about sales tax especially. This can cost you thousands of extra dollars when buying a new car; so don’t forget to include it in your calculations.
If you will be using your new vehicle for business purposes, there are other tax deductions you can figure on receiving. Be sure to discuss these with your accountant or tax expert before you make the purchase, because the IRS has strict restrictions and regulations when it comes to deductions for business vehicles.
If you are planning to use your new car to carpool to work, your employer may offer incentives, as does the IRS. The Internal Revenue Service offers some deductions on carpool expenses to the car owner. Be sure to discuss these with your tax expert or visit the IRS website in order to learn more.
Also check your State Department of Revenue to see what tax incentives they may be offering for the purchase of hybrids and plug-in automobiles.