Wednesday, September 16, 2009

Post CFC Tax Incentives to Buy a Car

Now that the popular Cash for Clunkers (CFC) program has ended, consumers can no longer take advantage of a $3,500 or $4,500 rebate towards the purchase of a new car. However, the CFC program was just one of the many incentives the government has setup to encourage taxpayers to buy a new vehicle. For those of you debating whether or not you can afford a new car, check out the following list of Federal tax incentives.

New Car Purchase Deduction

To help stimulate the economy, earlier this year the IRS announced a new tax deduction for taxpayers who purchase a car in 2009. The new deduction allows you to deduct “state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle." Therefore, if you pay $2,500 in taxes when you buy that new car, then you can deduct those funds from your taxable income come next tax season. Just be sure to keep all of your sales documents so you have proof of the taxes you paid. Additionally, there is no word yet on whether the deduction will be extended or not. So, if you are planning to buy a car then you might want to do so before the end of 2009.

Hybrid Tax Credits

There are numerous tax credits that are still available for those of you hoping to purchase a hybrid, or alternative fuel vehicle. The highest of which is a $4,000 credit for taxpayers who purchase a Honda Civic GX that runs entirely on compressed natural gas. As opposed to the new car sales tax deduction, the hybrid incentives are tax credits, meaning it will lower your tax bill dollar for dollar. To see a list of all the qualifying vehicles, check out

Electric Vehicles

Although somewhat less practical then a hybrid vehicle, electric powered automobiles come with the best set of tax incentives. As part of the Obama administrations American Recovery and Reinvestment Act of 2009, a new credit was created to encourage taxpayers to purchase electric vehicles. The credit is up to 10% of the purchase price, and depending on how much the vehicle costs, it could be a pretty significant tax credit. For those of you who might be hesitant, later in 2010 plug-in electric vehicles are expected to hit the market and will be eligible for a similar credit.

Vehicle Donations

If you decide to purchase a new vehicle, then you may want to consider donating your old car. In addition to knowing you are supporting a good cause, you can also reap certain tax benefits. There are several reputable charities that will take your still-running (sometimes even not running) vehicles. Just make sure that the charity you select has a non-profit status with the IRS, that way you can include the donation as a charitable contribution on your next tax return.


If you are a mechanic, or are just handy with cars, then you might be able to take advantage of conversion tax credits. Another section of the American Recovery and Reinvestment Act of 2009 gives taxpayers who purchase a kit to convert their car to an electric vehicle a 10% tax credit, up to $4,000. Additionally, according to the IRS taxpayers may claim this credit even if they have already claimed a hybrid purchase credit.

Business Expense

Finally, if you are self-employed or own a business then you might be able to take advantage of certain business car credits. You could take a mileage deduction based on the amount you drive your car for business reasons. Alternatively, if you lease a vehicle then you could write off a percentage of the monthly payments that corresponds with the amount of time you use the car for work. These credits could save you up to $1,500 per year. However, business related vehicle expenses can be quite tricky, and if you intend to take this route then I highly recommend speaking with a tax professional before making any decisions.

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