Auto tax incentives 2009

As part of President Obama's massive stimulus plan for the US economy, the Senate has just approved an extra $11 billion provision to help save the auto industry.

Led by Senator Barbara Mikulski (D-Md.), the provision allows for families that make less than $250,000 a year to claim a tax deduction for the sales tax and loan interest on the purchase of a new car between the dates of November 12, 2008 and the end of 2009. This will apply to loans up to $49,500.

Senator Mikulksi points out that "Everyone wants to save auto manufacturers, but no matter how much government aid we give to the Big Three auto makers, they can't survive if consumers don't start buying cars."

In real terms, savings from the tax break would vary depending on financing terms, state and local sales tax rates and the income of the buyer. A new-car buyer could save about $1,500 when purchasing a $25,000 car, according to calculations released by Mikulski's office.
Someone buying a $35,000 car could save $2,500. Car buyers would get the savings when they file their 2009 taxes next year. Savings would be less in states with no sales taxes.
For luxury cars, the sales tax deduction would apply only to the first $49,500 of the purchase price. The interest deduction would apply only to interest on the first $49,500 borrowed.

These savings come on top of the serious incentives that many dealers and manufacturers are offering these days to boost sales.

After a horrible January that saw sales slip 55 percent from last year, Chrysler has begun desperate measures by offering employee pricing on their entire lineup. In addition, some 2009 models offer $3500 in rebates, while some 2008 models qualify for $6000 cash back. Thanks to their multi-billion dollar federal loan, Chrysler financial says they have plenty of cash to loan customers and they have set up four-year payment plans with zero percent financing. Likewise, General Motors, whose sales this month dropped 49 percent currently has a whole list of vehicles that qualify for zero percent financing with various cash back options, and they have offered additional sales incentives to dealers. Ford's sales dipped 40 percent this month.

Many dealerships are sweetening the deals even further, offering so many discounts that it can add to up to 40 percent off the sticker price for select cars and trucks.

The end of 2009 has been used as the end-date in order to promote immediate buying and therefore immediate help for the industry. So if you have even remotely considered buying a new car, this year will be the time to do it.

The Senate voted 71-26 to include the automotive stimulus in the package, and President Obama is said to support the bill. Should it pass, vehicle sales tax would be deductible for the first time since 1986. The National Automobile Dealers Association has said that the stimulus package will increase auto sales and send a ripple throughout the US economy.

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Senate Approves Tax Incentives for Car Buyers