President Obama signed into law the new Cash for

Clunkers act which provides $3500 or $4500 trade in

allowance for certain older or gas guzzler cars upon

the purchase of a NEW or leased car. Enter Cash

for Clunkers in Google for the rules. A voucher is

reportedly provided. This may increase car purchases

and qualify the taxpayer for an auto sales tax

deduction although most taxpayers will not

benefit from this deduction.

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Why do you believe most taxpayers will not benefit from the auto sales tax deduction. If you don't itemize, the sales tax is added to your standard deduction. If you itemize and deduct taxes, the sales tax is an additional deduction. Only those that deduct sales taxes will not get a new break, since the auto sales tax is included. Seems like a great benefit for most taxpayers who purchase qualifying vehicles.

Also applies to more than one vehicle.

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The Quickfinder Chart says regarding sales tax

deduction for new vehicle: "...Only individuals who

itemize deductions and deduct state sales tax in

lieu of state and local income taxes can deduct

sales taxes paid on a vehicle and then only to

the extent the tax rate does not exceed the

general sales tax rate."

However IRS.gov states that the vehicle sales tax

is deductible whether or not the taxpayer itemizes.

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The May 15 issue of The Kiplinger Tax Letter states that the vehicle tax is deductible in addition for itemizers who deduct taxes. Information on the IRS website does not state that it is limited to those deducting sales tax.

It seems to be a matter of interpretation at this point, with clarification needed.

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Dyne, the QF chart you quoted is not new. That provision has been in effect since we were allowed to deduct sales tax in lieu of state income tax. The new vehicle sales tax deduction will be available for anyone, whether you itemize or not.

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That is correct--See IR 2009-30

http://www.irs.gov/newsroom/article/0,,id=205863,00.html

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Is the new provision allowed for people who itemize and deduct income tax?

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Yes. Purchase must be made on or after 2/17/09. (BTW, just a note that we are no longer discussing the original topic of this thread. That's a whole different ball game.)

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Yes, it is in the QF table,so Kiplinger and QF agree. As jerry241 pointed out, dyne was quoting the old rules also listed in the QF chart for comparison.

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In researching the issue, I found an article which

said: If you itemize and choose the option of deducting

your state SALES tax, you can NOT claim

the new vehicle sales tax deduction as an above

the line sales tax deduction. Does this means also

that you cannot deduct the sales tax on the auto on

schedule A if you deduct the general sales tax? If this

is correct, I had it REVERSED in my thinking. Thanks

for the comments.

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No, I believe the article is saying what I stated in my first reply. If you deduct sales tax, you still get to deduct the tax as an addition to the table amount, or if deducting actual taxes paid, the auto tax would be included. In either case this is a Sch A deduction and would not be a new break for itemizers choosing sales tax over an income tax deduction. By "above the line" I think they mean not in addition to the standard deduction or in addition to other itemized deductions since the vehicle sales tax is already deducted with the sales tax option.

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Thank you to Ed C, Jerry241 and Java. You are correct. Best wishes.

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>>A voucher is reportedly provided<<

Apparently this voucher will be taxable income in states like California that do not automatically conform to all federal changes.

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IF this voucher is taxable by a STATE, would it not

be considered a long term capital gain or loss and

in most cases the taxpayer would have an adjusted

basis larger than the $3500 or $4500 received? The

result would be a NON-deductible personal capital loss, but

would it not eliminate the taxability of the amount of the voucher?

If it was a business vehicle or vehicle used partially for business,

it would be more complicated and possibly some of it might be taxable

only to such STATE which tried to tax it.

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>>would it not be considered a long term capital gain or loss <<

That's a good question. My pessimistic guess is that the voucher will be treated as ordinary income on the state equivalent of Line 21, rather than part of the sales proceeds. In a sense it is included in the basis of the new car, because it is being used as a down payment.

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