Kristopher Lee
Missed out on the "cash for clunkers" program? Uncle Sam still has a few bones to throw your way if you buy a car before the end of the year. Tax credits and deductions are available on new-car purchases made before Dec. 31.
The tax relief won't rival what you might have received if you had traded in your gas guzzler, but it can help lower your tax bill -- or boost your refund -- when you file your return in April. And if you combine your tax breaks with some savvy negotiating, you can get a decent deal.
Sales tax deduction
All buyers, including those who took advantage of cash for clunkers, are eligible to deduct their sales taxes. The federal stimulus bill included a deduction for the sales tax and other fees charged on any auto purchase (including motorcycles and motor homes) made after Feb. 17 and before Jan. 1, 2010.
It's not a huge incentive, says Arthur Bloom, a tax partner at Marks, Paneth & Shron in New York City. But it's not pennies, either.
Bloom estimates that someone who buys a $30,000 car in a state with an 8.5 percent tax rate would pay about $2,600 in sales tax. If in the 25 percent tax bracket, the taxpayer would save about $635.
"I don't know if that's enough for somebody to say, 'OK, I'm going to go spend $30,000,' " Bloom says. "But it certainly reduces the cost of acquiring a car."
Hybrid vehicle tax credit
On top of the sales tax deduction, people who buy certain hybrid vehicles can also get a tax credit. Credits are even more appealing than tax deductions because they are subtracted from any tax you owe.
There are limits to how many of each model are eligible, and popular models such as the Toyota Prius are maxed out. But there are a number of vehicles that qualify.
The 2009 Mazda Tribute hybrid qualifies for a tax credit. (Mazda)
The 2009 models include certain Chrysler, Dodge, Mazda and Saturn hybrids, which qualify for credits of between $1,550 and $2,200. For 2010 models, there are credits of between $650 and $2,350 for certain SUVs and trucks made by Ford, Mercury, Chevrolet, Cadillac and GMC, and for specific sedans from Chevy and Nissan.
A list, last updated Oct. 9, of eligible cars is available on the Internal Revenue Service Web site, irs.gov.
Tax credits are also available for a handful of "lean burn" technology vehicles. These are mostly diesel-using luxury models from Germany. For the 2009 model year, credits of between $800 and $1,800 can be claimed for certain Audi, BMW, Mercedes and Volkswagen models. For 2010 models, specific Audis and Volkswagens qualify for credits of between $1,150 and $1,700. The IRS Web site has a list of the various models.
Get informed before you shop
Before heading to a dealer, prospective car buyers should also do some research. Consumers who don't do their homework end up paying higher prices, says Jesse Toprak, an industry analyst with TrueCar.com.
In late October, Toprak released his second monthly report tracking various sales data. In the report, he determines which models are easiest to negotiate the price on and which brands are linked with the biggest sales incentives.
Although the popular belief that it's easier to get a good deal at the end of the month has some merit, Toprak says car buyers who arm themselves with information and ask dealers for better prices don't really have to wait. "They'd rather sell it to you now," he says. "Ask for a similar discount, and nine out of 10 times, you'll get it."
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