New Car Tax Rebate- Obama Economic Stimulus Plan
Cash Back on 2009 Vehicle Purchase, Not Tax Credit on Federal Return
Jun 9, 2009
Upon the signing of the 2009 economic stimulus plan, Barack Obama authorized new car tax rebates for United States consumers. The rebate is for state & local sales and excise taxes on the purchase of a new passenger vehicle in 2009.
See below for exact dates qualifying purchases must be made as well as what kinds of vehicles qualify for this rebate.
Car Tax Rebate Is a Deduction, Not a Credit
For anyone with limited tax knowledge, the distinction between a tax deduction and a tax credit can be confusing. A tax deduction reduces taxable income (before tax is computed) while a tax credit is subtracted directly from the tax due.
What U.S. individuals should know is that certain new automobile purchases in 2009 will qualify them for an additional tax deduction on their 2009 federal income tax returns. Individuals should get money back in the form of a larger tax refund. In other words, individuals must pay the sales & excise taxes in 2009 to get cash back in 2010 when they file 2009 federal returns.
Qualify for the 2009 New Car Tax Break- Types of Automobiles, Weight Limits
According to the IRS, only passenger vehicles qualify for the new car tax rebate. This includes passenger automobiles (i.e. cars, SUVs), light trucks, motorcycles, and motor homes. The automobile (with the exception of a motor home) should not exceed a weight of 8,500 pounds.
The tax deduction will be capped at the amount of state & local sales and excise taxes paid on the first $49,500 of the purchase price.
Obama Economic Stimulus Package- When the New Car Must Be Purchased
To qualify for this additional tax deduction, taxpayers must purchase the new car after February 16, 2009 and before January 1, 2010. In other words, they must buy a new car that meets the criteria for this deduction between February 17, 2009 and December 31, 2009.
Who Qualifies to Deduct State and Local Sales & Excise Tax on 2009 Vehicle Purchase
Not everyone qualifies for the new car tax break. The full deduction is only available to individuals with modified adjusted gross income (AGI) of $125,000 or less. The deduction is partially phased out from $125,000 to $135,000 of income. Anyone with over $135,000 in modified AGI is prohibited from taking the deduction.
For married couples, phase out is from $250,000 to $260,000 in joint modified AGI.
Economic Stimulus Plan Explanation- Deduction for Buying a New Car
Plain language describing the new car tax deduction is not readily available. The American Recovery & Reinvestment Act of 2009 (a.k.a the economic stimulus package) is not written in plain language, and the IRS has published limited guidance on this rebate.
For more plain language information about the 2009 new vehicle purchase deduction, see the article 2009 Car Tax Deduction for Automobile Purchase. In that article, you will find important facts and an explanation of how to access newly released IRS tax forms.
Related articles:
United States Cash for Clunkers Program Details - Learn how to qualify for a $3,500 or $4,500 voucher from the federal government for a 2009 vehicle purchase.
Cash for Clunkers Rules - Find plain-language facts about the Car Allowance Rebate System.
Resources:
IRS website, irs.gov
American Recovery & Reinvestment Act of 2009
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