Vehicle Sales Tax Deduction

[StevenL]

Hello Everyone,

Is the sales tax deduction for vehicles purchased between Feb. 16, 2009 and Jan. 1, 2010 allowed if the vehicle is leased?

Thanks,

Steven LaForest, ATP

[TAXBILLY]

How can a leased vehicle be a purchased vehicle?

taxbilly

[jainen]

>>How can a leased vehicle be a purchased vehicle?<<

Often an auto "lease" is really a form of financing. A capital lease is considered to be a purchase if it provides an equity interest, i.e., some of the risks and benefits of ownership instead of just the right to use the property. This is usually indicated by a buyout at the end of the lease that is only a nominal amount or less than fair market value. When the lease term exceeds 75% of the car's useful life, or the present value of the payments exceeds 90% of the FMV, it is also considered a purchase.

[lsowers]

From the 2008 Quickfinder pg. 5-5 - "In addition to the table amounts, the taxpayer can deduct additional sales tax amounts from purchases of motor vehicles (including leased vehicles)."

[jainen]

>>From the 2008 Quickfinder pg. 5-5<<

There are TWO mutually exclusive deductions available. Quickfinder, published before the new law was passed, is describing the election on Schedule A to deduct sales taxes in lieu of state income taxes. The definition includes "compensating use taxes" complementary to a sales tax, so leased vehicles are counted for this purpose.

The original post concerns the 2009 Recovery Act, which uses a different definition for "qualified motor vehicle taxes" that are deductible as an itemized or standard deduction. I haven't seen any analysis that leased vehicles are covered. However, like new laws in general, this one raises lots of questions about how its limits are to be applied. Presumably the IRS will publish clarifications or regulations when it gets around to it. Meanwhile (in my opinion) we should be cautious of going beyond the plain language of the law.

[TAXBILLY]

The new law for the above the line deduction refers to sales tax deduction for new vehicles.

taxbilly

[lsowers]

Sorry, I completely missed the part about the dates. I guess that's why there are several of us on this forum, so we can catch each others dumb mistakes.

[joanmcq]

I believe leased vehicles are specifically NOT allowed for the new deduction. I know I read it somewhere, but couldn't tell you where. Maybe an RIA bulletin.