Sales Tax Break for New Car Purchases

The economic stimulus package includes a tax break for qualified individuals who purchase a new car, light truck, motorcycle or mobile home in 2009 (effective after the bill is signed into law).

You can deduct the state sales tax owed on the purchase of a new car provided the car cost less than $49,500. You can claim the deduction if you are single and your adjusted gross income is below $125,000; married couples filing a joint tax return can claim the full deduction if their AGI is below $250,000. The deduction phases out between $125,000 and $135,000 for individuals and for married couples with income between $250,000 and $260,000.

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Unfortunately, this applies just to new cars, not used cars or certified preowned (CPO) cars. I have to say that if you don't yet have an eight-month savings account, have any credit card debt or are behind on your retirement savings, this is a useless tax break. You probably have no business buying a new car. Buying a reliable used car is going to be a lot less costly than purchasing a new car, even with the tax break thrown in.

And as I have said repeatedly, until we get our credit markets unstuck, it may not be much help for the government to come in with these sorts of breaks. What good does it do you if you can't get a loan because lenders are too scared to lend?

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