The American Recovery and Reinvestment Act of 2009 is a comprehensive economic stimulus plan. The plan puts money into the hands of Americans with tax relief for many individuals and businesses. The goal is that the tax savings will be spent to stimulate the economy and that in turn will help those struggling including the auto industry. If American made cars disappear, what’s next to disappear - baseball, hot dogs, and apple pie?

You would have to be living under a rock these days to be unaware of the pain and suffering in the auto industry in our country. General Motors and Chrysler are certainly not doing very well with bankruptcy and mergers and buy-outs looming. Even with all the financial tweaking being done at corporate and government levels, the sale of vehicles must increase for economic recovery to begin in the auto industry.

This being clearly evident, this is addressed in the American Recovery and Reinvestment Act of 2009. There is a new deduction for both those who itemize and those who do not itemize. As started on February 17, 2009, both are allowed a deduction for sales and excise taxes paid on the purchase of a new motor vehicle, motorcycle, or motor home during 2009.

If you itemize the vehicle purchase taxes are deductible on Schedule A. If you do not itemize the taxes are added to the standard deduction amount that applies. The deduction is also allowable for AMT purposes.

There are some limitations that may apply that a savvy vehicle shopper might want to consider when deciding a on potential purchase. The deduction is limited to the first $49,500 of the purchase price. The gross weight of the vehicle cannot exceed 8,500 pounds. The deduction is phased out for modified gross incomes between $125,000 and $135,000 ($250,000 and $260,000 for joint return filers).

So, if you find yourself in need of a new vehicle and you are able to make a purchase in 2009 you may be able to structure your purchase so that you can take advantage of this new tax deduction. Perhaps, now more than ever before, you might want to consider the saying, “Buy American” before there are no American cars being manufactured to buy and American made vehicles will be relegated only to days gone by.

Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.

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