Tax credit...?

[Kross]

I am planning on buying a 2006 prius in the very near future (possibly in the next month or so).

I need to know if anyone can tell me concisely what to expect as far as the tax credit is concerned. I will be buying a new Prius directly from a dealer (what he/she has on the lot) and will not be ordering one.

Will I be able to get tax credit for this when I file my 2006 taxes in the beginning of 2007? If so, will I get the full $3,150? I am asking all this because I have been hearing that I may not get the credit because It will be second quarter of this year when I buy one.

Thanks in advance!

[jw_teacher]

I've heard different reports, but it looks like if you buy a Prius the first two quarters of this year you will be eligible for the tax credit in 2007. Now whether you get the entire credit is another issue. If you make a lot of money there will be a ceiling on how much you can get back from the government. You will be expected to pay a minimum amount of taxes based on your income bracket.

[Gregor]

Hi Kross,

I have a similar question. One dealer was candid enought to say that they are urged not to talk about it so that no one can come back and blame them if it does not work out. One salesman said that you would probably have to buy a car by the end of May another guessed that they heard that you had to buy the car before the summer.

We just bought our car last week. I wanted to get it before the quarter ended because I saw some snippet of legislation that indicated that you had to buy the vehicle within the first quarter after the 60,000th Toyota hybrid was purchased. My wife is completing our 2005 taxes and the documentation (man this stuff is cryptic sometimes) seems to indicate that after that quarter the tax credit will be phased down to 75% then 50% the next quarter etc. Keep in mind that for much of the country, Jan-Feb-Mar are slow car buying months. Also I think I read that Toyota made 100,000 hybrids last year.

Now here is our quandry. My wife somehow found an IRS document online. (You can forget calling them over the next two weeks.) It has "Dec 22, 2005" in big letters in the background: form 8910, "alternative motor vehicle credit." It seems to indicate that if we don't owe more than the credit, then we won't get the full amount. In other words, we owe $3000 in taxes but since we have two kids we get $2000 back for the child tax credit. So it seems that the most we can be credited is $1000. If this is true, we would have to somehow bring in another $13K in income to get utilize the other $2000 of the tax credit.

So to us it seems that you cannot get the full "credit" if you don't owe Uncle Sam that much. In other words, the IRS is not going to send us a check for the rest. But we cannot determine if this is true because there are directions which refer to another form which we were unable to find.

Does anyone out there have the CPA background to sort this out? We would love to hear from you at (724) 449-2564, but only call if you think we will get the full credit otherwise you will only confirm our disappointment.

thanks,
Greg

[galaxee]

Kross: the full credit will be for anyone who purchases their car before the end of the quarter after the one in which toyota sells 60k hybrids. to clarify that... say by some incredible miracle they sell 60k in the first quarter. that means if you buy before the end of june you get the full credit. if they reach 60k between april 1 and june 30, you have until the end of september to get the full credit. make sense? as far as how much you end up with... see next comment.


Gregor: the hybrid credit is a 'nonrefundable' credit, unlike child tax credits and such. meaning that it will only reduce your tax liability to zero.

i'm not sure how that will work in conjunction with the child tax credits.

[Gregor]

Thanks Galaxee, I finally saw that its all spelled out many times in another thread. I thought we were getting a 2006 Prius at the current 2004 Prius price. I guess that only works out if you have a greater income / tax liability.

[bgdrewsif]

Well my question (which does not seem to have been answered anywhere yet) is what kind of income would one need to have to get the full $3150 (barring any odd deductions, etc... ? Does anyone actually know? I know nothing about taxes or how they work so I have no hope of figuring this out on my own and trying to get free advice from H&R this time of year is hopeless...

[ChuX]

This year I didn't owe any money for taxes, in fact I am getting tax refund. If the same holds true for year 2006, and I purchase the Prius before the 60k units are sold, does that mean I do not get affected by the tax credit when I file my taxes?

[dalemccl]

<div class='quotetop'>QUOTE(ChuX @ Apr 1 2006, 08:44 PM) [snapback]233584[/snapback]</div>

This year I didn't owe any money for taxes, in fact I am getting tax refund. If the same holds true for year 2006, and I purchase the Prius before the 60k units are sold, does that mean I do not get affected by the tax credit when I file my taxes?
[/b]

Sounds like you are expecting a refund because you will have more withheld from your paycheck than your total tax liability you calculate when you file your taxes. The hybrid credit has nothing to do with withholding. It is based on your total tax liability when you file your taxes, regardless of how much withholding you had. For example if your tax liability for 2006 was $4,000, based on your income and deductions, and you had $4500 withheld from your check, the credit would apply to your $4,000 tax and reduce it to $850. Your refund would be $4500 minus 850 equals $3650. That is, your tax, after the credit would be $850 and you had $4,500 withheld so you overpaid by $3650.

As noted by another poster, the credit cannot take your tax liablity below zero. And it cannot take it below the Alternative Minimum Tax (AMT) if it applies to your tax situation. AMT is complicated - I don't understand it, but you might want to check into it to see if it applies in your case. If it does, it could prevent you from fully benefiting from the hybrid credit.

[sub3marathonman]

<div class='quotetop'>QUOTE(galaxee @ Apr 1 2006, 06:19 PM) [snapback]233489[/snapback]</div>

Kross: the full credit will be for anyone who purchases their car before the end of the quarter after the one in which toyota sells 60k hybrids. to clarify that... say by some incredible miracle they sell 60k in the first quarter. that means if you buy before the end of june you get the full credit. if they reach 60k between april 1 and june 30, you have until the end of september to get the full credit. make sense? as far as how much you end up with... see next comment.
Gregor: the hybrid credit is a 'nonrefundable' credit, unlike child tax credits and such. meaning that it will only reduce your tax liability to zero.

i'm not sure how that will work in conjunction with the child tax credits.
[/b]

The IRS has spelled it out in even more detail. Before you can take the hybrid credit you MUST take all other credits. So if there is somehow a credit which could be carried over into another year under normal circumstances, it is my understanding that you must instead take that credit before you can start to take the hybrid credit.

So it is definitely possible to lose out on the hybrid tax credit if you have a lot of credits or don't make enough income to make it worthwhile, or you make too much income so you have to pay the AMT.

Please understand that I'm not a tax lawyer or giving tax advice, I'm just repeating what I've heard.

[ChuX]

dalemccl, thanks for clearing up the issue for me.