New Car Buyer Tax Deduction In 2009 Economic Stimulus Package

One of the more interesting aspects of the recent economic stimulus bill was the introduction of a federal income tax deduction on any taxes and excise taxes paid on a new vehicle.  This was introduced because of the poor condition of the big 3 car companies since this deduction will help encourage some people to buy cars.

What kind of vehicles are eligible?

To be eligible for this deduction – it must meet the following criteria:

  • Vehicle has to be purchased between February 17, 2009 and December 31, 2009.
  • Vehicle has to be a new.  Used or leased vehicles don’t qualify.
  • Foreign or domestic makes are eligible.
  • Purchase cost has to be less than $49,500.
  • Weigh has to be less than 8500 pounds.  This would include SUVs and light pickup trucks.
  • The buyer has to have an income of  less than $125,000 if single and $250,000 for families.
  • Must be a car, light truck, recreational vehicle or motorcycle.

Please note that a partial deduction is available to single buyers with incomes up to $135,000 and families with incomes up to $260,000.

What about hybrid cars?

Plug-in hybrid cars are eligible for a larger tax credit of  up to $7,500.  The credits will range from $2,500 to $7,500 based on the size of the battery.

How does it work?

Basically you can use the sales tax and excise taxes paid on the new vehicle to reduce your taxable income.  This isn’t going to be a large benefit but it’s worth thinking about if you need to buy a new vehicle in 2009.

Find out about more available tax incentives in the 2009 stimulus package.

9 replies on “New Car Buyer Tax Deduction In 2009 Economic Stimulus Package”

Question – i have a post about this on my blog as well and I’m getting questions about whether or not this would apply only to new vehicles, or if cars used as demos would apply as well? I’m assuming new cars only?

Peter – I don’t recall seeing that mentioned anywhere, but I would assume that demos are still considered new cars – you are still the first owner of it.


Only applies if you pay USA income tax. You can buy the car in Canada.

If you only pay Canadian income tax, then this will not apply.

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