The IRS reminds consumers with both good and bad credit that they have only 10 days left in which to take advantage of the sales and excise tax deduction for new vehicles
Going away in 2010
Back in October, we wrote about the same subject here at Auto Net Financial. But the fact remains that, much like the “cash for clunkers” program, the new vehicle sales and excise tax deduction portion of the American Recovery and Reinvestment Act may very well not be available after the first of the year. With sales and excise taxes adding an additional five to eight percentage points to the cost of a new vehicle, buying a new car before the first of the year seems to be a no brainer - especially if you plan on purchasing a vehicle in the next few months. This decision is even more critical for consumers planning on using a bad credit car loan to finance their new vehicle.
These challenged consumers will be saving hundreds of dollars off the transaction price and hundreds more in interest cost savings.
As we all know, new cars have a number of advantages going for them. They’re more reliable, they come with a factory warranty and, more importantly, they often come with rebates and incentives – money that can often be used towards a down payment. And while high risk borrowers will still be paying the higher interest rates required of bad credit car loans, they have the next 10 days in which to take advantage of the current sales and excise tax deduction, which is set to expire on January 1st, 2010.
Here is additional information furnished by the IRS:
WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.
Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.
Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.
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 take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.
Time is running out
Any time you can make a bad credit car loan more affordable, it’s a good thing. Bad credit car loan buyers can do just that by completing their new car transaction before the January 1, 2010 deadline. This pertains to all tax filers - you don’t have to itemize in order to take advantage of the deduction.
For more information about car loans for people with bad credit, we invite you to visit our web site at: www.autonetfinancial.com.
For more information on this and other key tax provisions of the Recovery Act visit the official IRS Website at IRS.gov.
