No, this is not Lee Iacocca with a check in hand luring you to buy a Chrysler. (For those of you TYTK – too young to know – Lee Iacocca was the CEO of Chrysler about 25 years ago).
There is a proposal that passed as an amendment to the stimulus bill (so called ‘American Recovery and Reinvestment Act ‘) in the U.S Senate. It would provide an income tax deduction to taxpayers who purchase a new car. The deduction would allow the taxpayer to deduct from their income sales taxes paid and the interest paid on any car loan.
The tax deduction would apply to single filers who earn less than $125,000 per year and married couples who earn less than $250,000 per year. How can you determine if you qualify? It’s not as easy of a question to answer as you might think. Here’s how to determine if you qualify, or at least what you need to consider to find out.
This question often comes up about legislation, and the media do not often provide the details in their stories.
First, this isn’t the yearly income your earn from your job. For many people, the actual reported income from your job is less than your stated salary due to top line deductions that your employer takes to pay for some benefits. Also, when you file your tax return, you would have to also add any passive income, which may include bank interest, dividends, or any gains you had, e.g. selling stocks.
The press release for the amendment also left out exactly what type of income they mean. To put this in IRS speak, we need to know which line number on the 1040 tax form the bill is referring to. The two important ones that came to mind are: Adjusted Gross Income (AGI) and Modified Gross Adjusted Income (MAGI). AGI is reported in line #37 while MAGI is calculated by adding back deductions from AGI in numerous ways depending on its context (Confused, yet?). After checking the amendent itself, they are referring to AGI for almost everyone unless you have foreign income. So just use your AGI.
So, if you need to estimate if you would qualify, calculate your AGI. A good starting point is to look at line #37 on last years tax return.