New-Car Tax Credit

That new-car smell just got better, thanks to legislation that provides tax incentives to new-car buyers.

The U.S. Department of Treasury recently announced that the American Recovery and Reinvestment Act of 2009's new-car tax deduction now extends to consumers in states without a sales or excise tax (boston.com June 17). These states include Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

If you live in any of the other 44 states, you're still able to deduct state or local sales or excise taxes paid on the qualifying vehicle purchase (ustreas.gov June 11).

Here's what you need to know to qualify for this special tax deduction:

• Purchase deadline.The new car, light truck, motor home or motorcycle must be purchased after Feb. 16, and before January 1, 2010.
• When to file.The deduction applies only to your 2009 federal tax return, which you'll file in 2010.
• Itemized or not.You can claim the special deduction regardless of whether you itemize deductions on your federal tax return.
• Price limit.Your deduction is limited to fees or taxes you paid on up to $49,500 of the vehicle's purchase price.
• Phase-out.The deduction begins to get smaller if your modified adjusted gross income is at $125,000, and the deduction is exhausted at $135,000 for individual filers. For joint filers, the special tax deduction is phased out at between $250,000 and $260,000 of your modified adjusted gross income.