'06 Credit Available even if you take it in '05?

If you conduct the transaction in January, you should have no problem.

If you complete the sale in December but don't take possession until January, you should probably still be ok (no "test drives" between sale and possession).
It wouldn't hurt to try to get an IRS representative to confirm this for you in writing.
(Yeah, good luck there! )

If the dealer want's it off the lot in December, you have both have a PROBLEM.
If you want the tax credit, do not accept possession of or use any part of the car after paying for the car and before January 01, 2006.

If you want the credit, the safest way to ensure you get it is to process the sale after December 31, 2005.

 

Will this pass the IRS laugh test:

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Test drive the car from whenever car arrives to 12/31 then buy it on or after New Year's Day?

It takes the car off the lot (dealer asked for it), and purchase transaction is on 1/1/06.
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I personally would wait until 12:01am on 1/1/06 to buy it, just to make sure i will get full tax credit(if AMT won't bite me).

 

Going along the same lines as this poster here is my dillema!!!

So a good friend from High School's family owns one of the Biggest Ford dealerships in the Central Valley where I live. They recently acquired the local Toyota dealership and my friend works there.

He called me today and said they have 7 new prii on the lot for sale. Two of which are '06 Package 7's just like I want.. im thinking of going white since they had a black but it sold this morning.

Anyhow here is the 'deal'. This weekend they are red tagging the cars since they havent sold yet. He told me the red tag deal is $1,400 off the sticker and that he would try to do a little more but we can talk about that then. Only catch is id have to buy it this weekend. Delivery etc. So I am going to have to assume that granted a $2000 deduction isnt nearly as nice as a $3150 rebate, when you sweeten the pot with at least $1,400 more what would you do?

Granted im sure more will eventually come in and all, I am thinking that white is a better way since im not really all that found of many of the colors either way. PLUS where I live in the summer it gets up to 116 and im thinking black would REALLY suck, that and im anal so I would hate to see spiderwebbing in the paint from washing etc.

 

Just do the math.

Assuming that you are in the 28% bracket, a $2,000 deduction is worth $560 off your taxes ($660 in the 33% bracket and $500 in the 25% bracket). Add the $1,400 discount and the sales tax you'd be saving on top of it (at least $100) and your total savings total $2,160, if you take advantage of this offer. This is still short of the $3,150 tax credit which you'd be receiving on your 2006 income tax, if you are not subject to AMT.

 

How would you determine AMT?

 

The easiest way, if your income has not changed substantially from last year, is to take a look at your 2004 tax return and review your AMT (Alternative Minimum Tax) calculation.

This is the IRS publication on Alternative Minimum Tax and Form 6251 to compute it.

 

And if it has substantially changed are you SOL?

 

You can ask your accountant to run some numbers for you and give you an estimate of the impact, if any, of the AMT.

Regarding the whole issue of what will qualify for 2006 credit, as several folks have mentioned, you are safest doing the entire transaction in 2006. However, if you purchased in 2005 and had documentation from dealer saying the vehicle was driven off their lot and "placed in service" in 2006, I bet you could claim the credit. The only complication is if the 2006 IRS forms will require a bill of sale, then you are out of luck, or at least taking a greater chance.

Unless your return should flag the IRS for other reasons, I am guessing they will be busy catching bigger fish. Even if they do challenge it and win, your downside is not that great.

 

There is no way of telling without knowing your income, filing status and deductions. Either do the computation using the form to which I posted a link above or call your accountant to get a better idea of your situation.

 

bbianchi, Here is a basic lowdown.. http://www.toalfinancial.com/amt.php
If you are married filing jointy.. you need to make over 150K to get dinged.. but this spells it out better.

It can sound confusing.. but basically looks at the limits....


Scroll down to the area that talks about "Filing Status"

You are entitled to an AMT exemption amount. This exemption was designed to prevent the AMT from applying to taxpayers with modest incomes. The amount of your exemption is phased out as your AMTI reaches higher levels. The exemption is subtracted from your AMTI to determine the amount of your AMTI that is subject to tax at the AMT rates.

Look at the area under AMTI exemption phaseout threshold

 

Well, they probably wouldn't hit anyone with penalties (such as the negligence penalty) but they would certainly tack interest onto to the deficiency. Further, if the credit is disallowed for 2006 based on the assertion that "original use" was in 2005, that would entail filing an amended 2005 return to claim the deduction. Any way you look at this, it is, at the very least, going to be a PITA if the credit gets challenged and one is not able to submit some sort of definitive document (such as an invoice dated in 2006).