xmatt

Yeah, that's correct. I think a lot of people are confused because originally it was going to be a tax credit, but after congress got a lot of good publicity, they quietly nerfed the bill to make it just a deduction.

nearwater4me

I see. So how much aproximately would one get back?
Is the benefit significant?

Dan

JonBoy

Yeah, that was my mistake too. They said it was going to be a tax credit. A deduction is dumb (to me) since I already get that in Texas.

Mocky

it's definitely not the same as a credit... it depends on several factors but you can check online and can probably get a rough estimate.


I found this on the sound money matters site.. someone posted this... I think it sums it up...

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First, per the IRS, it is not a tax credit, but a deduction. Deductions are a reduction in your taxable income. Credits are much more valuable because they are direct reductions in the tax you pay. For example, a deduction of $1 means that you save $0.35 on taxes if you are in the 35% tax bracket. A credit of $1 means you save $1 in taxes, no matter what your tax bracket.

Second, the estimated savings of $1500 on a new $25,000 car was based on the proposal, not the final law. As you noted, the original proposal included a tax deduction for car loan interest. However, it was left out of the final law. From Sen. Mikulski’s (amendment author) website (http://mikulski.senate.gov/_pdfs/Pre...xamendment.pdf), the $1500 savings was broken down into $420 savings from sales tax deduction and $1133 savings from interest deduction. Since the interest deduction was left off, the savings for the average family is only $420.

Third, because it is “above the line,” the tax saved will be significantly less than the sales tax paid. Imagine I paid $25000 for a car. Using the Senator’s assumption of 6% sales tax, I would have $1500 of sales tax that I pay at the time of the purchase to the state. This is how Sen. Mikulski can say that that this would increase state sales tax revenue. However, when I got around to filing my taxes, I would get to subtract $1500 from my income. This would reduce my federal income tax by the above $420. So, even if the federal government cuts the state benefits by the same amount as the tax cut, the state would still be up by $1000.

Sorry for the long diatribe. Your best advice is spot on. Shop for a car as if this tax savings didn’t exist, because for most of us, the savings would be less than 1 car payment.


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Chris S

I've been taking sales tax deductions on car purchases for years now - no change from my perspective. (I suspect this incentive is only a benefit for citizens of states w/ income taxes)

nearwater4me

Thanks for clearing things up.
Had my hopes up a little too high. lol.

Dan

Ralleh

Seems like you'd take much less of a hit if you bought slightly used and avoided some of the depreciation tax.

Scooterboy

Bought an '09 in April

Make to much $$ to qualify
























J/K