New Car Sales Tax Credit

[S T]

Taxpayer purchased a vehicle December 09. The contract shows that the Vehicle is Used with 11,740 miles on odometer - 09 BMW
Dealership that sold the vehicle to the taxpayer claims he will be the "FIRST" Registered Owner of the Vehicle.

So does this vehicle qualify for the New Car Sales Tax Credit, as this taxpayer does not Itemize Deductions?

What paperwork does the Taxpayer need to substantiate, if it does qualify?

Sandy

[jimenright]

Schedule L

Instructions say the use of the vehicle must begin with you. This is obviously not true of a vehicle with that many miles.

[BHoffman]

Sandy - would the taxpayer pay sales tax on the purchase of a used vehicle in his or her State?

In AZ, there is no sales tax on used cars, so no deduction could be taken. But if the dealership sold the car as new and did charge the sales tax, then I'd say that would make it deductible.

[S T]

Calif

California charges the same sales tax rate on new or used. If you buy private party you pay the sales tax at the DMV when you transfer title and register the vehicle.

This vehicle was a "demo" vehicle at the dealership. So it was either driven by dealership mgr or sales person, or some other dealership staff, or available as a loaner to customers.

I find it hard to believe it was not registered with the 11K miles on it.

Contract clearly states USED and the dealership also had to report the odometer reading at point of sale.

But of course the Sales Person told the taxpayer that he could obtain the credit as it had "never been" registered and taxpayer would be the "first" registered owner.

I was thinking of having the taxpayer obtain a "history" from Calif DMV for ownership, but I don't know if that alone will qualify for the deduction, as clearly the vehicle is "Used".

Sandy

[BP.]

This vehicle was a "demo" vehicle at the dealership. So it was either driven by dealership mgr or sales person, or some other dealership staff, or available as a loaner to customers.

I find it hard to believe it was not registered with the 11K miles on it.

I've purchased two dealer demo cars in the past. Both had around 6k miles, and I was considered the original owner; cars first registered and titled to me. So with that in mind, I would initially say this qualifies.

The sticking point for your client is that the darn contract says "used." (Mine said "new" but also "demo.") As a source document that seems to negate the deduction.

[Burke]

IMO, I would take it. The theory being that this deduction was instigated to promote the SALE of new cars. This car was never previously sold by the dealer, and the car has never been registered with the DMV as a result. So it is the sale of a new car even though it had been driven. Just sold for a lower price due to that fact. Have the client get a statement from the dealer attesting to the actual status of the car.

[JCH]

If the contract says used, it's used. 11K_ miles. Used. No deduction. Since when do we start believing car salesman about our business (or anything)?

[Jesse]

If the contract says used, it's used. 11K_ miles. Used. No deduction. Since when do we start believing car salesman about our business (or anything)?

I'm in agreement with JCH on this one. I would tell the client to ask the salesman if it's new why does the sales agreement say "used" and not "new". Have the salesman write up a new contract and change the "used" to "new" or have him cite his source for the eligibility of the sales tax credit.

[Burke]

I agree with the poster that says if the contract says "used" you have a problem. There is no way TP can substantiate that it is new unless he has something from the dealer (even though he can get a carfax on it showing he is the first owner). I would go along with Jesse and ask for a new copy of the sales contract.

[AJsTax]

Read the definition!!

Quote" A new vehicle means the taxpayer is the first person to hold a title to the vehicle (NOT COUNTING THE DEALERSHIP).
So I don't CARE what the contract says, if they are the first person to title the vehicle they are good to take the deduction.

[WhiteOleander]

Quote" A new vehicle means the taxpayer is the first person to hold a title to the vehicle (NOT COUNTING THE DEALERSHIP).
So I don't give a rat()*^*(^&*^ what the contract says, if they are the first person to title the vehicle they are good to take the deduction.

I agree with this. I wonder if the sales contract is marked "used" in regards to warranties etc available to the purchaser?

[JCH]

Quote" A new vehicle means the taxpayer is the first person to hold a title to the vehicle (NOT COUNTING THE DEALERSHIP).
So I don't give a rat()*^*(^&*^ what the contract says, if they are the first person to title the vehicle they are good to take the deduction.

I would suggest reading the code section 164(b)(6)(D)(i)(I): "a passenger automobile or light truck which is treated as a motor vehicle for purposes of title II of the Clean Air Act, the gross vehicle weight rating of which is not more than 8,500 pounds, and the original use of which commences with the taxpayer"

At 11K miles, I would interpret "original use" commencing with whomever drove it 11,000 miles, not the taxpayer.

[S T]

Qalified Motor Vehicles

I found this on Webcpa

The sales tax on any "qualified motor vehicle" qualifies for the new deduction. While original use of the vehicle must commence with the taxpayer to be a "qualified motor vehicle," there is no requirement that a particular model year be purchased (a 2008, 2009 or 2010 model year vehicle will do, as long as it is new).

There is a question over whether dealer "demo" vehicles are considered new or used. Consensus is that as long as the vehicle has not yet been registered for personal use under state motor vehicle department rules, it can be considered new for purposes of the sales tax deduction. Here again, the IRS had not officially weighed in.

Still not definitive.


Sandy

[AJsTax]

The rules state with the original user

I would suggest reading the code section 164(b)(6)(D)(i)(I): "a passenger automobile or light truck which is treated as a motor vehicle for purposes of title II of the Clean Air Act, the gross vehicle weight rating of which is not more than 8,500 pounds, and the original use of which commences with the taxpayer"

At 11K miles, I would interpret "original use" commencing with whomever drove it 11,000 miles, not the taxpayer.

NOT counting the dealer. It is very possible to have that many miles on a new car if the dealer used it for a demo/loaner. It is a new car for this credit WITHOUT ANY doubt.
Why would you want to deny a legitimate credit to a client like so many seem to want to do.?????????? That makes no sense to me at all. We work for the client to get them the best return we can file within the rules..

[David1980]

Quote" A new vehicle means the taxpayer is the first person to hold a title to the vehicle (NOT COUNTING THE DEALERSHIP).
So I don't CARE what the contract says, if they are the first person to title the vehicle they are good to take the deduction.

How do you know they were the first person to title the vehicle?

I can't even get an honest answer regularly from some taxpayers. Now we're adding "the sales guy said" to the equation? There's now 2 people that could have lied. The taxpayer and the sales. Heck, the sales guy may have been told that by his supervisor, which would make it 3 people who could have lied. Does carfax still do the free info by VIN for cars that might show if it was titled previously?