Sales Tax Deduction for Vehicle Purchases

Sales Tax Deduction for Vehicle Purchases

The tax deduction was introduced primarily to stimulate vehicle purchases in the American economy following the fall in demand during a crushing recession. So the government felt obliged to take a small pinch on the sales tax they take from vehicle buyers, by giving them a deduction on purchase of new vehicles.

New Vehicle Sales Tax Deduction

The sales tax deduction seemed to be a great way of reviving the demand for new cars in the American economy. The idea was that by orchestrating a reasonable fall in the price of new vehicles, the government would be able to stimulate the demand for the scores of vehicles lying in the warehouses of car companies, unsold. So the sales tax deduction was implemented. Here’s how it was meant to work.

Timing of Purchase
The first criteria is the timing of the purchase. The catch here is that the sales tax deduction is only applicable for vehicles purchased between February 16, 2009 and January 1, 2010. Only vehicles that were sold between this time are eligible for a sales tax deduction. For vehicles sold before February 16, 2009 and after January 1, 2010, it is not applicable and will have to be paid at the specified rate.

Vehicle Qualification
Of course, not all vehicles are applicable for sales tax deduction. For tax deduction, the vehicle needs to meet the following criteria.

  • The deduction only applies to vehicles which are new and not second-hand purchases.
  • The vehicle needs to be classified under automobile, light truck or motorcycle, (not exceeding a gross weight of 8500 pounds) or motor home or a recreation vehicle which were subject to no upper limit for gross weight.

Price Qualification
One more little catch in the rule is that a complete tax deduction is valid for a maximum price of $49,500. For amounts above $49,500 the sales tax will be calculated on a pro-rata basis.

States That Don’t Charge Sales Tax
If you live in one of the states where there is no sales tax, do you forgo this deduction? No. The rules state that if the state you reside in, or purchase the vehicle from, charges nothing in the way of sales tax, you may be eligible for a deduction under fees, excise taxes or other taxes that are assessed on the purchase of a vehicle.

The sales tax deduction tempts the buyer to purchase a vehicle, because a large enough component in the price of the vehicle gets knocked off. Hence a lot of people rightfully cashed on this opportunity for making their vehicle purchase between February 16, 2009 and January 1, 2010. So if you are one of the people who did, you can file for this deduction right away!