New Vehicles Tax Credit for Delawareans in 2009

Delawareans won't miss out on a tax deduction for the purchase of new vehicles this year just because the state doesn't have a sales tax.

The Treasury Department and Internal Revenue Service announced that purchases made in states without a sales tax -- such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon -- can qualify for other deductions.

The ruling is a tweak to the federal stimulus package, which allows deductions for state or local sales or excise taxes paid on the new-car purchase.

Delaware's vehicle document fee -- 3.75 percent of the purchase price or National Automobile Dealers Association book value, whichever is greater -- now qualifies for a tax credit under the stimulus package for cars purchased in 2009, according to the state's congressional delegation.

The delegation's members -- Democratic Sens. Tom Carper and Ted Kaufman, and Republican Rep. Mike Castle -- said they sent several letters requesting that the document fee be eligible.

"This is an important and positive decision that will encourage Delawareans to purchase new cars and help boost our state's economy," Carper said. "It was always Congress' intent for the document fee to be eligible for the federal tax credit."

To qualify for the deduction, a vehicle must have been purchased after Feb. 16, 2009, and before Jan. 1, 2010, according to the Treasury. The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers can claim the deduction only on their 2009 tax returns filed next year.

The deduction is limited to the fees or taxes on up to $49,500 of the purchase price of a qualified new car, light truck, motor home, or motorcycle.

The amount of the deduction is phased out for individual taxpayers whose modified adjusted gross income is between $125,000 and $135,000, and for joint filers whose modified adjusted gross income is between $250,000 and $260,000, according to Treasury.

Castle said the ruling levels the playing field for Delawareans.

Kaufman said it will encourage more vehicle purchases, providing "much needed support to our state's struggling auto dealerships."