Buying a new car? You may be able to boost your excitement with a potential sales tax deduction, and, depending on the type of car you purchase, a possible tax credit as well.
If you live in a state that has an income tax, you can choose to deduct the higher of the state income tax you paid or your state and local taxes. Since Washington State has no state income tax, you can deduct your state and local sales tax.
If you opt to deduct your state and local taxes, you either must save your sales tax receipts and total them at the end of the year, or use the IRS tables based on income. Most of us do not save all of our sales receipts, so for easy record-keeping we use the tables based on income. The sales taxes you paid on the purchase of motor vehicles, boats, aircraft, and, in some cases, building materials for a substantial addition to or renovation of an existing structure can be counted on top of your sales tax table and local tax amounts. You will need to save those receipts, however, and report the sales tax with our tax documents.
If your heart is set on a new electric or hybrid car, there is a potential tax credit. The minimum credit amount is $2,500 and may be as much as $7,500 based on each vehicle's traction-battery capacity and the gross vehicle- weight rating. The credit will be phased out for each manufacturer so verify that you will qualify for it before you purchase your new car.