(LOS ANGELES, March 26, 2009) -- Does picturing a new Chevrolet, Ford, Kia, Nissan, Toyota, or Scion for yourself or your family make you wistful yet uneasy about making such a large purchase during a challenging economy? Uncle Sam wants you to re-think the idea. The federal economic stimulus bill signed into law last month offers car buyers a tax incentive to purchase a new vehicle this year.
By passing the auto sales tax break for new vehicle buyers, Congress hopes to increase the number of consumers visiting dealership showrooms and boost car sales.
Car shoppers will receive an “above-the-line” deduction for state and local sales taxes or excise taxes paid on most new car purchases and obtain a credit on 2009’s tax filing next spring. This particular deduction can be used by all taxpayers, whether they itemize or not.
Domestic and foreign-made cars, SUVs, light trucks, motor homes and motorcycles generally qualify for the new car deduction. However, sales taxes paid on a lease agreement are not included. If sales tax was 8 percent on a $40,000 vehicle, the above-the-line deduction is $3,200 for the taxpayer.
The law limits a tax deduction on one vehicle with a price tag up to $49,500 and is phased out for high wage earners (gross income exceeding $125,000 for a single filer or $250,000 for a joint return).
If you buy a plug-in electric car, there’s a larger tax credit of at least $2,500. Depending on battery life and the number of cars sold nationwide, you could claim up to another $5,000 in credits.
The Auto Club’s New Car Buying Service also can help members reduce the sticker price with AAA pre-negotiated pricing—without the haggling—through its select network of recommended dealers. Many manufacturers are also offering incentives and zero-interest loans for credit-worthy car shoppers, according to Dave Cavano, the Automobile Club of Southern California’s Car Buying Service Manager.
Like any important buying decision, conducting research and having a plan prior to visiting a dealer can save money and ensure buying the right car within an individual’s budget, according to Cavano.
Cavano recommends the following tips to help car buyers choose a vehicle and avoid typical car-buying pitfalls:
- Research costs, features and safety. Before stepping foot on a dealer car lot check car-buying web sites to research the car of your dreams. Check out the style of vehicle you want to buy, the dealer’s cost, government mileage ratings, safety features, warranty coverage from the manufacturer and special features, like hybrid technology or 4-wheel drive capabilities. This information, along with crash-test ratings, is available online from the Auto Club and also from the National Highway Traffic Safety Administration at no charge.
- Set a budget. Decide how much you are able to spend and determine if you’re eligible for discounts, or any rebates or incentives from the manufacturer or dealer.
- Get pre-approved financing. Get pre-approved before going to the dealership. "If the dealer offers better financing, that's great. If not, you’ve secured a competitive loan," said Cavano.
- Get referrals from trusted sources. Ask family members, friends, neighbors, or trust-worthy organizations such as the Auto Club, about reliable makes and reputable dealers. The Auto Club has developed a network of reputable new car dealerships in its car buying network, which offer discounted vehicle prices to its members and offers dispute resolution should anything during the purchasing process go wrong.
- Invest in a vehicle with safety features. Ensure the vehicle is equipped with driver and front-passenger airbags and height-adjustable shoulder belts in the front and back seats. Also ensure the car features adjustable and lockable head restraints. Anti-lock brakes and traction control also are desirable features. More information is available in AAA's brochure "Buying A Safer Car."
- Know. Don’t Guess. Newspaper automotive ads are a good place to check for vehicles. The Auto Club's web site also provides free new vehicle pricing under "Build Your Car" for members and cost of ownership information.
- Test-drive before you buy. Make sure you test-drive the car you want to buy. Drive up hills, on highways, and in stop-and-go traffic, to mimic your commute and other trips.
- Beware of aftermarket products. Beware of sales pitches on aftermarket features such as paint sealants, tinted windows and rust-proofing applications that you may not need.
- Know the value of your trade-in. Research the value of your trade-in before visiting the dealership. Know the selling-price of your vehicle if you’re going to sell it on your own. Kelley Blue Book estimates are available on the Auto Club's web site for members.