LAST CHANCE FEDERAL TAX BREAK ON NEW CARS AND TRUCKS

The American Recovery and Reinvestment Act permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles.

The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.

The American Recovery and Reinvestment Act permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.

The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who make qualifying new vehicle purchases this year can estimate the deduction with the help of IRS Publication 919, How Do I Adjust My Withholding? Lines 10a to 10k on Worksheet 10 take into account purchases above the $49,500 limit, as well as the reduced deductions for taxpayers at higher income levels.

Here are seven things you should know about this new deduction:

1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.

2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.

3. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

4. This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.

5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.

6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

7. The deduction may not be taken on 2008 tax returns.

Consumers who are considering buying a new car may find that this tax incentive means there may have never been a better time to buy.

For more information about the sales and excise tax deduction for motor vehicle purchases visit the official IRS web site at IRS.gov.