Warning! The following post may contain material that causes drowsiness. Do not drive or operate machinery while reading. The latest and greatest from the Stimulus Bill includes a tax deduction for buying a new car. I like to think of it as another dopey idea for people who can't do math. This provision allows a tax deduction for the sales tax on the purchase of the vehicle and another deduction for the interest paid on a loan to finance it. Suppose that you buy a car for $25,000 bucks. Here in Hooterville, where the sales tax rate is 8.1%, you would pay $2,025 in sales tax. That translates into a one-time income tax savings of about $300, if you are in the 15% marginal rate or about $500 if you are in the 25% bracket. If you were to finance the new car, you would also get to deduct the interest you paid on the loan. The interest on a $25K loan over 5 years is about $4,000 at a 6% interest rate. It breaks down like this. Year 1 - $1300 - tax savings $195 (15% rate) or $325 (25% rate) Year 2 - $1100 - tax savings $165 (15% rate) or $275 (25% rate) Year 3 - $ 900 - tax savings $135 (15% rate) or $225 (25% rate) Year 4 - $ 600 - tax savings $ 90 (15% rate) or $150 (25% rate) Year 5 - $ 100 - tax savings $ 15 (15% rate) or $ 25 (25% rate) Total saving on income taxes over 5 years is between $900 and $1500, or $180 to $300 per year. So the question is, should you go deeply in debt to buy a depreciating asset in order to get $25 per month from the government? Things in this blog represented to be fact, may or may not actually be true. The writer is frequently wrong, sometimes just full of it, but always judgmental and cranky