New sales tax deduction/tuition credit

Several new and exciting, yes I said exciting, tax provisions have been enacted by congress for the 2009 tax year. Two of the provisions that caught my attention this year are the deduction for qualified motor vehicle taxes and the American Opportunity Tax Credit (AOTC).

The deduction for qualified motor vehicle taxes allows taxpayers to deduct the sales/excise tax that was paid when the taxpayer purchased a qualified vehicle in 2009. This new deduction is different from the sales tax deduction that can be claimed by itemizing taxpayers. In the past itemizing taxpayers have had to choose to deduct either State income taxes paid or sales tax. Under this new provision the taxpayer will be allowed to claim State income taxes paid and the sales/excise tax paid on the purchase of a qualified vehicle. This deduction can also be taken by individuals who claim the standard deduction. In order to claim this deduction, taxpayers taking the standard deduction must now complete Schedule L (Form 1040A or 1040). As usual, income and other limitations apply.

The AOTC has implemented several changes to the long standing Hope credit. The AOTC allows for taxpayers to claim a credit of up to $2,500 - the previous credit was $1,800, called the Hope credit - for qualified higher education expenses. The AOTC is available for the first 4 years of the student’s postsecondary education; the Hope credit was limited to two years. The AOTC has also expanded the definition of qualified higher education expenses to include textbooks and other course material. Again, income and other limitations apply.