Motor Vehicle Sales Tax Deduction's Purchase-Price Limit Applies Per Vehicle, Says IRS Spokesperson

In response to a recent inquiry by CCH, an IRS spokesperson has stated that the $49,500 purchase-price limitation contained in the new motor vehicle sales tax deduction is imposed on a per-vehicle basis. "A taxpayer may deduct the taxes paid on the purchase of more than one vehicle, even if the total of the purchase price exceeds $49,500. There is no limitation on the number of vehicles an individual can purchase," the IRS spokesperson told CCH.

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) provides that sales taxes paid on the purchase of a new vehicle on or after February 17, 2009, and before January 1, 2010, may be taken as a deduction on a 2009 return, whether or not the taxpayer itemizes. The deduction is limited both by a modified adjusted gross income cap (with phase-out starting at $250,000 for joint filers and $125,000 for others) and by a $49,500 purchase-price limitation (Code Sec. 164(b)(6)(B)).

Some practitioners were concerned that the statutory language that imposes the $49,500 limitation could be read in several different ways. The concern was that, in addition to being applied on a per-vehicle basis, the $49,500 amount could be interpreted as limiting the deduction to sales tax paid on only a single vehicle purchase during the applicable time period or to sales tax only up to $49,500, regardless of whether incurred as the result of a single purchase or multiple purchases. The decision by the IRS to apply the limitation on a per-vehicle basis appears consistent with an intent to limit the tax benefit gained from the purchase of vehicles in the high-end luxury category.

No formal or IRS website guidance has yet been released on this issue. The IRS spokesperson did not speculate on whether formal guidance would be forthcoming.

By George Jones, CCH News Staff

Source CCH Incorporated