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Yesterday, with a vote of 71-26, the U.S. Senate passed new legislation allowing new car buyers to deduct auto taxes and interest on car loans on their federal tax returns. (See how your elected officials voted here!) The bill was sponsored by Senator Barbara Mikulski (D-MD) and is expected to cost the feds $11 billion over ten years.
In essence, the law offers the same tax benefits to new car buyers as those enjoyed by homeowners, who deduct mortgage interest on their returns. (Used car fans: no help for you yet.) Buyers don't have to itemize their deductions to take the write-off, so EZ filers, it's your lucky day. We should point out, however, that not everyone is eligible for the plan: if you earn more than $125,000, or $250,000 as a married couple filing jointly, you may be SOL. Sorry.
Even niftier, the law is slightly retroactive, applying to new cars bought since November 12, 2008--back in the heady, early bailout days. The deal runs throughout the 2009 calendar year, so make your buy prior to December 31. Just remember: the interest/sales tax deduction break applies to the first $49,500 of the car's price. So, you know, don't get starry-eyed about driving that tax-free Lambo just yet.