Automotive | All About Automotive

Recognizing the troubles that have befallen the U.S. automobile industry, our Congress has instituted two pieces of legislation to stimulate new car sales.

That, plus the fact that many dealerships are closing, translates into a potential bonanza for those consumers who are considering a new car purchase.

The first goody is a tax break for consumers who purchase a new car this year because these purchasers can deduct all state taxes and excise taxes paid. The deduction phases out for vehicles that cost more than $49,500, but the tax break does apply to light trucks, motor homes and motorcycles.

However, the deduction does not apply to used car purchases, and it phases out for single taxpayers who have Adjusted Gross Incomes between $125,000 and $135,000. For married couples filing jointly, the phase-out corridor is between $250,000 and $260,000.

Another plus with this program is that the deduction can be claimed on 2009 tax returns regardless of whether one itemizes or claims the standard deduction.

In addition to the new tax breaks, it's a particularly good time to shop for a new car - especially at General Motors dealerships that are closing.

The other piece of legislation pertaining to the automobile industry is the so-called "cash for clunkers" program. The problem with this enactment is that not many vehicles qualify for a government voucher, but if your car is older and not worth much, this program is for you.

Here is how the program works: If you have a car that was manufactured in 1984 or later, has been in use for at least one year, is drivable and the vehicle gets less than 18 mpg, combined for city and highway driving (each vehicle's official mpg rating can be obtained on www.fueleconomy.gov), you will get a voucher worth $3,500 - if the new vehicle's mileage is rated at least 22 mpg. If your new car gets 10 mpg more than your old vehicle, then the voucher is worth $4,500.

For light-duty SUVs, vans and pickups to qualify for a $3,500 voucher, the mileage on the new vehicle must be 18 mpg combined and 2 mpg better than the old one. If the new vehicle gets 5 mpg better mileage, you can claim the $4,500 voucher. For heavy-duty vehicles - those rated at 6,000 to 8,500 pounds for gross vehicle weight - the rules are even more lenient. The $3,500 voucher is available if the new vehicle gets at least 15 mpg combined and just 1 mpg better mileage than the old one. You need only 2 mpg better to qualify for the $4,500 voucher.

Work trucks with gross vehicle weight ratings of 8,500 to 10,000 pounds qualify for the $3,500 voucher so long as the old vehicle is a 2001 or earlier model.

The program is not as good as it sounds, unless your vehicle is a real clunker. The voucher replaces your trade-in value, and your old vehicle heads for the scrap heap.

You can check out www.kbb.com to see if your car's mileage and value make this program worthwhile for you.

+ 'Cash for Clunkers' Calculator by kbb.com

Tax tip: If you are a principal in a C Corporation (one that pays taxes as a separate entity), your corporation can purchase long-term care insurance for you and your spouse, deduct the cost as a business expense, and neither you nor your spouse will incur any income tax liability. Moreover, the dollars from the policies used for pay for qualifying expenses are income tax-free to you or your spouse. And the best part is that you don't have to include any of your other employees.