Sales Tax on New Vehicles

[Dave T]

Client's son leased a vehicle in 2007 and the lease is coming due in January 2010.

He has a buy-out option on the vehicle for approx. $15K. He is considering doing this and would do it in 2009 if there were a tax advantage to doing so.

I do not believe that this would qualify for the additional above the line sales tax deduction as this is not a new vehicle but would be eligible for the Sch. A sales tax deduction if it were greater than his state (NY) income taxes.

Am I correct in this?

Thanks

- Dave T

[tilt]

That's the way I understand it.

[TAXBILLY]

Correct.

taxbilly

[jainen]

>>this is not a new vehicle<<

Let's think about this some more. The code doesn't say it has to be new at the time of purchase. Section 164(B )(6)(d)(i) says, "The term 'qualified motor vehicle' means... and the original use of which commences with the taxpayer."

[sodini46]

The Master Guide states: "taxes paid on purchases of new (not used) automobiles...)

[jainen]

>>The Master Guide states... <<

Would you say that accurately reflects the Tax Code section I quoted?

[Jerry W]

I can understand the lack of clarity as to whether the sales tax deduction applies only to new vehicles. It may be another "back door" way that IRS gets to the conclusion that it applies only to new vehicles. A "qualified motor vehicle" from the House Bill of January 9, 2009 provides this definition:(D) QUALIFIED MOTOR VEHICLE.—The term ‘qualified motor vehicle’ means a passenger automobile (within the meaning of section 30B(h)(3)) or a light truck (within the meaning of such section)—

“(i) which is acquired for use by the taxpayer and not for resale after November 12, 2008, and before January 1, 2010,

“(ii) the original use of which commences with the taxpayer, and

“(iii) which has a gross vehicle weight rating of not more than 8,500 pounds.”.

Section 30B(h)(3)refers to "ALTERNATIVE MOTOR VEHICLE", which seems to refer to "new" vehicle.

Typically confusing language.

[jainen]

>>from the House Bill of January 9, 2009.... Typically confusing language. <<

It wouldn't be so confusing if you would stick to what the final law actually says.

[Evan S. Golar]

To my way of thinking - the leasing company was the original owner. The taxpayer, although he used the vehicle, didn't own the vehicle. It was only AFTER the lease expired did he own it - so he was a subsequent owner. Therefore the vehicle would not qualify because it was not a new vehicle.

Similar to the distinctions between an employee vs independent contractor when it comes to employment related issues - both have a relationship with an employer - but different capacities.

[jainen]

>>To my way of thinking... he used the vehicle<<

Can you see that I QUOTED the code? It says original use. It doesn't say original ownership.

[Gail in Virginia]

>>To my way of thinking... he used the vehicle<<

Can you see that I QUOTED the code? It says original use. It doesn't say original ownership.

I hesitate to get involved in this, but the original owner (the lease company) originally used this vehicle as property available for lease to the taxpayer in question. So despite your quote of the code, I am not sure of the definition of original use.

[OldJack]

An excellent post gailtaxed! I'll bet the lease company even claimed sec. 179 depreciation after putting the lease vehicle in use with this client.

[kcjenkins]

Jainen is wrong and Gail is right, IMHO. It's original use was as rental property by the leasing company.

[jainen]

>>It's original use was as rental property<<

Before that, the dealer used it as inventory. And before that, some trucker used it as freight.

[Jack from Ohio]

<<<Grabs some popcorn and some Root Beer and settles in to watch...>>>

[Catherine]

<<<Grabs some popcorn and some Root Beer and settles in to watch...>>>

<<<Grabbing a handful and another bottle of that root beer and watching with you -- we sure get some great shows here! Wonder if/when the sparks will fly...>>>

[Margaret CPA in OH]

Who needs reality shows on television? The bonus is that we actually learn some things along the way. It is interesting to follow the thought trains of some very bright minds, too!

[kcjenkins]

>>It's original use was as rental property<<

Before that, the dealer used it as inventory. And before that, some trucker used it as freight.

Nope, being 'inventory' or 'freight' is not "Use". And I know you know that. :rolleyes:

[jainen]

>>'inventory' or 'freight' is not "Use"<<

Then neither is the nominal ownership by a leasing company, which never even had possession or control. Cite some authority for your position. (I'm glad we can all have a friendly root beer over this. It isn't very often I get to argue the deduction while you others take the IRS point of view.)

[Jack from Ohio]

(I'm glad we can all have a friendly root beer over this. It isn't very often I get to argue the deduction while you others take the IRS point of view.)

Waiting on the devilled eggs to get finished so we can go to the In-laws for Dinner...

I have yet to post my position on the said debate. I am just enjoying root beer and popcorn while the debate continues and I learn from all the posts!

[zeke]

[Waiting on the devilled eggs to get finished so we can go to the In-laws for Dinner...

.... and as a wannabe contrarian, I am waiting for the angel food cake.

This entire thread should be posted as required reading.

z

[jainen]

>>This entire thread should be posted as required reading.<<

This thread is for entertainment purposes only, and nobody should be required to have fun.

What IS required from tax professionals is reality. The original post suggested a car owner would buy a three year old vehicle at a typically lease-inflated buyout rate so he could claim a tax benefit of, let's see, max 8.75% rate times $15,000 is $1313, times max tax bracket of 35% saves up to $460, with some other effect on AGI and Schedule A. He would do better with ANY other car on the lot, new or old, asking 500 bucks off the price and take the sales tax anyway.

[taxguy057]

jainen you are just too good! easy on the rest of us poor ole lil tax accountants... :P

[kcjenkins]

>>'inventory' or 'freight' is not "Use"<<

Then neither is the nominal ownership by a leasing company, which never even had possession or control. Cite some authority for your position. (I'm glad we can all have a friendly root beer over this. It isn't very often I get to argue the deduction while you others take the IRS point of view.)

And how did you determine that the leasing company never had possession or control, Jainen? And what do you mean by 'nominal ownership'? Are you suggesting that the leasing company did not have legal title to the car? Where did you get that info?

[jainen]

>>Where did you get that info?<<

Nice try turning this around. But I am not the one adding facts to the scenario. YOU are inventing a new step for the leasing company. I can't say that all states show the lessee as registered owner, but I'm positive that there isn't a dealer in the country who doesn't hand the keys directly to the customer.