You cannot deduct new motor vehicle taxes if you elect to deduct state and local general sales taxes on Schedule A (Form 1040), line 5.
You can deduct state or local sales or excise taxes you paid after February 16, 2009, for the purchase of any motor vehicle(s) if you are the original user of the vehicle (in other words, the vehicle is "new"). A motor vehicle is any passenger automobile, light truck, or motorcycle with a gross vehicle weight rating that is not more than 8,500 pounds, or a motor home.
If you purchase a new motor vehicle in a state that does not have a sales tax, you can deduct certain fees that are charged to buyers of new motor vehicles if the fee charged is similar to a sales tax. The states that do not have a sales tax are Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon.
The deduction for new motor vehicle taxes is subject to a limit based on vehicle price and an income limit. If both of these limits apply, you figure the amount of your deduction by applying the income limit after you figure the amount of your deduction subject to the limit based on vehicle price. These limits also apply to certain fees that are charged to buyers of new motor vehicles in states that do not have a sales tax. If you itemize deductions, figure these limits using the worksheet on page 2 of Schedule A (Form 1040). Complete Schedule L (Form 1040A or 1040) if you take the standard deduction.taxmap/pub17/p17-120.htm#en_us_publink1000206830
Your deduction is limited to the state or local sales or excise taxes you paid on the first $49,500 of the purchase price of each new motor vehicle. For this purpose, the purchase price is the cost of the new motor vehicle, not including any state or local sales or excise taxes. If the purchase price (before taxes) of your new motor vehicle is $49,500 or less, the amount of state or local sales or excise taxes you paid on the purchase is not limited based on vehicle price. However, if the purchase price (before taxes) exceeds $49,500, the amount of taxes you can deduct is limited to the portion of the total taxes you paid that are attributable to the first $49,500 of the purchase price.
To figure the amount of taxes you paid on the first $49,500 of the purchase price, you will need to know the rate(s) of tax that apply in the state and locality where you purchased each new motor vehicle. Some states and localities impose a fixed rate, while others may provide rates that are limited to a certain dollar amount per purchase. See the Example, later.taxmap/pub17/p17-120.htm#en_us_publink1000206831
The income limit for the deduction for new motor vehicle taxes is based on modified adjusted gross income (AGI). If your modified AGI is $135,000 or more ($260,000 or more if your filing status is married filing jointly) you cannot deduct new motor vehicle taxes. Use the following table to see if the income limit will affect your deduction.
| IF your modified AGI is... || THEN the income limit... |
|$125,000 or less ($250,000 or less if married filing jointly)||will not affect your deduction|
|$125,001 to $134,999 ($250,001 to $259,999 if married filing jointly)||will reduce your deduction|
|$135,000 or more ($260,000 or more if married filing jointly)||will eliminate your deduction|taxmap/pub17/p17-120.htm#en_us_publink1000219977
To figure your modified AGI, add back the following items to your adjusted gross income (Form 1040, line 38, or Form 1040A, line 22).
- The foreign earned income exclusion.
- The foreign housing exclusion and deduction.
- The exclusions for income earned by bona fide residents of American Samoa and Puerto Rico.
You purchased a new light truck on May 3, 2009, for $60,000 before taxes. The total amount of state and local sales taxes you paid were $3,650. The state where you purchased the vehicle imposed a fixed general sales tax rate of 6% (.06), and the county charged an additional discretionary sales tax of 1/2% (.005) on the first $10,000 of the purchase price. The amount of sales tax you can deduct is limited to $3,020. This is the total of the state sales tax of $2,970, which is subject to the limit based on vehicle price ($49,500 x .06), plus the county sales tax of $50 ($10,000 x .005). Because your filing status is single and your modified AGI is $126,000, the income limit also applies. You enter $3,020 on line 3 of the worksheet on page 2 of Schedule A (Form 1040). You complete the rest of the worksheet and determine that the amount you can deduct is further reduced by $302 (on line 10 of the worksheet) as a result of the income limit. The amount you can deduct for new motor vehicle taxes is $2,718 ($3,020 – $302). You enter $2,718 on line 11 of the worksheet and on Schedule A (Form 1040), line 7.
Any amount you deduct for new motor vehicle taxes, either as an itemized deduction or as an increase to your standard deduction, is not included in the cost of the motor vehicle for purposes of figuring any deduction for depreciation (in the case of business property) or figuring gain or loss when you sell or otherwise dispose of the motor vehicle. In the above Example, the cost of the new light truck is $60,932. This is the amount of the purchase price before taxes ($60,000) plus the amount of sales taxes you paid that you did not deduct ($3,650 – $2,718 = $932).