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SOON A THE PRICE OF A NEW CAR WILL BE ALL THAT STANDS BETWEEN YOU AND $179.60

March 08, 2006

If a bill that passed the Iowa House yesterday ends up as law, Iowans will be able to claim a $2,000 deduction when they buy a vehicle that qualifies for the federal clean fuel vehicle tax credit.

The provision is in the "code conformity" bill that the legislature passes annually to update the state tax law for federal changes. For cars bought before 2006, the federal tax law provided clean fuel deduction. The federal deduction was replaced by a credit for 2006; Iowa's change would allow Iowans to continue to take the deduction on their state returns.

A "credit" reduces taxes dollar-for-dollar; a $2,000 credit would reduce your tax bill by $2,000. A deduction, in contrast, reduces your income on which the tax is computed; a $2,000 deduction would save $179.60 for a taxpayer at Iowa's top 8.98% tax rate.

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