WA, TX, AK, FL car buyers just got a better deal

People living in Washington, Texas, Florida, and Alaska who have purchased new and used cars from dealers in 2006 are dancing. In the closing moments of the Congressional session, the sales tax deduction was renewed.

The aforementioned states are the only in the nation with a state sales tax, but no state income tax. Maybe this explains why I live in Washington and previously resided in Texas. The problem has been that while state income tax can be deducted from federal income tax, with the exception of a few years here and there, the sales tax cannot. 2005 deduction ran out without being renewed…until yesterday.

This is not something that is the sole responsibility of Republicans or Democrats. Representatives from both parties, like Brian Baird (D-WA) and Kevin Brady (R-TX) have been working hard for years to create the tax fairness.

Anyone in these states can get a non-itemized average deduction, but for anyone who bought a car, this means doing an itemized deduction. The deduction applies to any sales tax, but seeing that the average price of a new car is now over $30,000 it’s a big deal to those who pulled the trigger on a new ride this year.

Some of us got really lucky. I tried to buy a Toyota Avalon late in December last year before the deduction ended. The dealer, however, couldn’t locate a Limited model in time. To compensate for the lack of ability to deduct sales tax, the sales manager gave me another few hundred bucks off the price – which was already near-invoice. Now I get to reduce my taxable income by an additional $2,800 on that purchase alone…Well, make that on my wife’s taxable income, because being a writer means that my tax-deductable health insurance costs alone put me dangerously close to the red.

Obviously, it would make sense to talk to your friendly neighborhood accountant before tax season to figure out how all this affects you. For me, I just hope I can find the shoebox with all those receipts for the purchases I made this year…because I’ll just dump it on my wife’s desk and tell her to figure it all out.

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