Question about new vehicle sales tax deduction

You're right, it's 2 different events I guess. We paid for the car and gave it to her. It's in her name. That's what I wasn't sure about, does the car have to be in my name to qualify for the deduction?

pattyb53 said: I also just purchased a new car to get in on the economic stimulus bill enacted this year that is only good (Feb-Dec 2009).
I had planned to buy a new car next year and noticed the "New Car Sales Deduction" on purchases of up to $49,500.00 that expires Dec 31.
Does anyone know if this is going to be extended?

We have 1 car -- a 1998 Toyota Corolla which drives great and hasn't had any problems the past few years but I just don't know how long it's going to last. I live in an area with ~10% sales tax so the tax deduction is appreciable.

lonestarguy said: Sales taxes are fully deductable no matter what is purchased IF you pay more in state sales taxes than state income taxes. In states without an income tax, you will clearly be deducting sales taxes, but in other states it will depend on what you bought and how much you make and have to fork over to your state via income taxes.

Fully deductible unless you're hit by the AMT.

tazzy531 said:
You are talking about a different deduction. The American Recovery and Reinvestment Act allows a special deduction for sales tax and car payment interest. This is separate from the (greater of) sales tax vs state income tax deduction.

You can also take this deduction even if you use the standard deduction.
This is correct and only good for a car purchased from Feb-Dec, 2009.

This is my main reason for purchasing my 2010 Lexus this past week. I had originally planned to buy the car next year but with the new Tax Incentive Bill, the time was perfect for me this year.
Living in CA, every bit of income tax deduction is needed come April 15.

pattyb53 said:
You bought the car and the sales tax is on your purchase.
The fact that you gave the car to your niece has nothing to do with the sales tax on the purchase.

Thanks. I just wasn't sure if the vehicle had to be in my name or not to qualify.

So I guess my sister and I will each claim half of the sales tax, since we paid equally? I know these are stupid question, I'm sorry again.

I am married filing jointly and the car was under $20,000, so that's less than $10,000 a piece my sister and I paid for the car.

tazzy531 said: Collven said: I am married filing jointly and the car was under $20,000, so that's less than $10,000 a piece my sister and I paid for the car.

TheMeliorist's point is that maybe your sister gifted you $10K for you to purchase the car. That means that you take 100% of the tax deduction.

Or maybe you gifted $10K to your sister to purchase the car and she takes 100% of the tax deduction.


Why might you or your sister characterize this transaction as gifts rather than taking 50/50 on the tax deduction?

Well, what if your marginal tax rate is 28% and she is in the 15% tax bracket.

Scenario 1: 50/50 Tax Deduction
You: 10K * 0.28 = $2800 tax savings
Sis: 10K * 0.15 = $1500 tax savings
Total Tax Savings: $4300

Scenario 2: Sis gifts you $10K, you take 100% tax deduction
You: 20K * 0.28 = $5600 tax savings
Total tax savings: $5600 ($1300 more than if you had split the deduction)
Then what you can do is give your sister $1500 cash after you get your tax refund or, if you're feeling generous, you can give her half of the $1300 ($2150) and both of you end up much better.

Obviously, there's a lot of things you can do in this situation.What am I missing?

The total sales tax deduction is not the $20,000 vehicle purchase price, but just the sales tax on that.

If the tax rate is 8%, that's a $1,600 potential deduction, not $20k.

The 28% tax bracket savings on that is $448 rather than $5,600.

We're both going to be in the same tax bracket this year, so it looks like we'll just split the deduction. Thanks for the help.

Collven said: We're both going to be in the same tax bracket this year, so it looks like we'll just split the deduction. Thanks for the help.Does the bill of sale list one or both of you as the purchaser?

You might be safer from an audit perspective if you match who takes the deduction with who is listed on the BOS. The odds are that neither of you would be questioned on this, but if you are, having proof of the purchase would be helpful. If one of you has to explain why you're taking a deduction for a car on which you name is not listed as either the purchaser or the registered owner, that person may have some explaining to do.

Xnarg said: Collven said: We're both going to be in the same tax bracket this year, so it looks like we'll just split the deduction. Thanks for the help.Does the bill of sale list one or both of you as the purchaser?

You might be safer from an audit perspective if you match who takes the deduction with who is listed on the BOS. The odds are that neither of you would be questioned on this, but if you are, having proof of the purchase would be helpful. If one of you has to explain why you're taking a deduction for a car on which you name is not listed as either the purchaser or the registered owner, that person may have some explaining to do.

Honestly, I'm not sure the bill of sale lists either one of us as the purchaser. We put everything in my niece's name. It never occured to us at the time. We both have a copy of the checks we wrote, if that would help.