Can I Deduct the Taxes I Paid on My Car When I Bought It?
Although Congress passed a special provision for the 2009 tax year that allowed filers to deduct the tax payment on their vehicles from their taxable gross income, the provision was not renewed for subsequent years. At the time of publication, no such special provision exists for individuals. Businesses, however, can deduct taxes on car purchases.
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Individual Filers
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If you are an individual buying a motor vehicle for personal use, you cannot deduct any of the taxes or fees you have paid to purchase or register the vehicle from your taxable income base. Neither sales tax, nor such special taxes as the "gas guzzler tax" or the fees you must pay at your local motor vehicle department to obtain your license plates are deductible from your local or federal taxable gross income.
Provision for 2009
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There is a great deal of confusion among taxpayers with regard to the deductions of sales taxes for motor vehicle purchases as a result of an earlier law. The American Reinvestment and Recovery Act passed in 2009 allowed filers to deduct the sales tax paid on a new motor vehicle purchased between February 17 and December 31 of 2009. An especially attractive provision in the law allowed filers to claim this deduction even if they opted for the standard deduction instead of itemizing their deductible expenses.
The law was intended to encourage the purchases of big ticket items to stimulate the economy and was not renewed for later tax years.
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Businesses
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If the vehicle was purchased for a business, all expenses associated with the purchase as well as registration are deductible from the taxable gross income of the associated business. Make sure to keep all receipts, as the accounting department of the business will need to carefully file these.
Business and Personal Use
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If you purchase a vehicle, registered under your name, which you intend to use for both business as well as personally, you cannot deduct any portion of the sales tax from the business's gross income. The reason is that the vehicle will not qualify as an asset of the business, since you retain full ownership. You may, however, be able to deduct part of the operating expenses, such as gas, road tolls, insurance and maintenance. The Internal Revenue Service provides two ways to account for the expenses of your vehicle: You can either use the standard mileage rate, in which case you merely need to keep track of the number of miles you have used your vehicle for business, or you can calculate the actual operating costs of the vehicle. Refer to IRS Publication 463 for details (IRS.gov).
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References
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