The American Recovery and Reinvestment Act of 2009 contains several tax benefits for the buyers of new vehicles. These benefits expire December 31, 2009 so now is the time to encourage sales.
Additional Deduction for State Sales and Excise Taxes
An additional deduction is provided for individuals for state sales and excise tax paid on the purchase of certain new motor vehicles.
- The deduction is provided for sales and excise taxes on:
- New passenger automobiles or light trucks of GVWR of not more than 8,500 pounds
- New motorcycles
- New motor homes
- The deduction is limited to the portion of the tax attributable to so much of the purchase price as does not exceed $49,500.
- Example: $60,000 automobile x 7% sales tax = $4,200. The sales tax deduction would be $3,465. The calculation is as follows: $49,500/$60,000 x $4,200 = $3,465.
- The deduction applies to purchases made on or after February 17, 2009 and through December 31, 2009.
- The deduction is available only if the purchaser’s modified adjusted gross income is less than:
- $135,000 for single individuals
- $260,000 for married couples
The deduction is allowed even if the purchaser does not itemize deductions. The deduction increases the amount of the standard deduction allowed to be claimed.
The deduction does not apply to leased vehicles.
Increase in First Year Depreciation (Bonus Depreciation) of Business Automobiles and Light Trucks for 2009
Through 2009, the first-year depreciation cap is $10,960 for passenger automobiles and $11,160 for light trucks. The first-year caps without the $8,000 additional bonus depreciation would be $2,960 and $3,160, respectively.
Heavy Vehicles - Bonus Depreciation Extended through 2009
For trucks or vans (including SUVs and mini vans built on a truck chassis) that have a loaded GVWR greater than 6,000 pounds, there are no first-year depreciation caps. New vehicles purchased during 2009 would qualify for the 50% bonus depreciation provisions. In addition, a maximum Section 179 deduction of $25,000 is available for these new and used heavy vehicles.
Example: For the purchase of a heavy duty pickup truck for $60,000, the first-year depreciation deduction would be $46,000 ($25,000 Section 179, $17,500 50% bonus depreciation, plus $3,500 regular depreciation.)
Heavy Vehicles That Qualify for Full Extended Section 179 Deduction
Other trucks and vans meeting one of the requirements below are eligible for the full Section 179 deduction – up to $250,000 for 2009.
- Vehicles with a cargo area of at least six feet in interior length that is not easily accessible directly from the passenger area.
- Vehicles designed to seat more than nine passengers behind the driver’s seat.
- Vehicles with a fully enclosed driver’s compartment and cargo area, no seating behind driver’s seat, and no body section protruding more than 30 inches ahead of the leading edge of the windshield.
Example: For a purchase of a vehicle meeting requirement 1 above for $60,000, the first-year depreciation deduction would be $60,000 ($60,000 Section 179 deduction).
*Customers purchasing vehicles should check with their tax advisors regarding other specific restrictions that might apply to their specific circumstances.
Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.