Retirement & Financial Planning Report

If you bought a new vehicle in 2009, you may be able to deduct the sales tax you paid on your federal income tax return. Keep these points in mind:

* If you take an itemized deduction for state and local sales taxes, the sales taxes or similar tax you paid on the purchase of any vehicle are fully deductible on Schedule A, where you claim itemized deductions. You can add the vehicle sales tax to the amount you get from the optional sales tax table.

* If you don’t itemize your deductions, you may be able to deduct the sales tax anyway. To qualify, you must have purchased a new vehicle last year, after February 16. You can deduct the sales taxes you paid on the first $49,500 of the purchase price; you add that amount to your standard deduction on Schedule L of your tax return. However, no sales tax deduction will be allowed if your adjusted gross income (AGI) is $135,000 or higher ($260,000 or higher if you’re married and file a joint return). Eligible vehicles include cars, trucks and motorcycles that weigh 8,500 pounds or less as well as motor homes. 

* If you take an itemized deduction for state and local income taxes instead of state and local sales taxes and you bought an eligible vehicle in the time period mentioned above,  you may be able to claim an itemized deduction for the sales taxes you paid on the first $49,500 of the purchase price. However, the income limits mentioned above still apply.