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There's still time for auto tax breaks by year-end

Uncle Sam has a few bones to throw your way if you buy a car before the end of the year. Both tax credits and deductions are available on new car purchases made before Dec. 31.

The tax relief won't rival what you might have received if you traded in your gas guzzler, but it can help lower your tax bill - or boost your refund - when you file your return in April.

Sales tax deduction: All buyers, including those who took advantage of Cash for Clunkers, are eligible to deduct their sales taxes. The federal stimulus bill included a deduction for the sales tax and other fees charged on any new car purchase made after Feb. 17 and before Jan. 1. It's not a huge incentive, but it's not pennies, either.

There are some caveats. The deduction begins to phase out for those who earn $125,000 a year ($250,000 for married people filing joint returns), and is eliminated for people who earn $135,000 ($260,000 for joint filers). What's more, the deduction is limited to the first $49,500 of the purchase price.

The sales tax deduction is available whether or not you itemize your return, because it can be added to the standard deduction. And it can be claimed whether you bought a car, truck, motorcycle or even a motor home. There's no limit to how many vehicles you can claim, as long as each purchase was made in the right time period.

Hybrid vehicle tax credit: On top of the sales tax deduction, people who buy certain hybrid vehicles can also get a tax credit.

Tax credits are even more appealing than tax deductions because they are subtracted from any tax you owe.

Hybrid credits have existed since 2005, and there are limits to how many of each model are eligible. Models that hit the market early and quickly became popular, like the Toyota Prius, are no longer eligible. But there are a number of vehicles that qualify from 2009 and 2010.

The 2009 models include certain Chrysler, Dodge, Mazda and Saturn hybrids, which qualify for credits between $1,550 and $2,200. For 2010 models, there are credits between $650 and $2,350 for certain SUVs and trucks made by Ford, Mercury, Chevrolet, Cadillac and GMC, and for specific sedans from Chevy and Nissan.

A list of the eligible cars is available on the Internal Revenue Service Web site: irs.gov.

Tax credits are also available for a handful of "lean burn" technology vehicles. These are cars or light trucks with engines designed to use less fuel, and are mostly diesel-using luxury models from Germany.

For the 2009 model year, credits between $800 and $1,800 can be claimed for certain Audi, BMW, Mercedes and Volkswagen models. For 2010 models, specific Audis and Volkswagens qualify for credits between $1,150 and $1,700. The IRS Web site has a list of the various models.

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