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Thinking
about buying a hybrid and cashing in on the tax credit? You
need to know the rules!
If you purchased a Toyota or Lexus hybrid after Oct. 1, 2007, it isn't
eligible for a tax credit. That is because Toyota sold more than
60,000 hybrid vehicles in the United States that were eligible for the
full credit by the summer of 2006. Under the rules, the IRS began
phasing out tax incentives for the company's hybrids beginning in the
fall of that year. By the fall of 2007, the credits were gone.
What about the Honda Civic Hybrid? If you purchased it up
until the end of 2007, you're still eligible for its $2,100 tax credit.
If you buy a Honda hybrid in early 2008, you may still be eligible for a
tax credit, but it'll only be worth a maximum of $1,050. That same
credit will be reduced again in the summer of 2008 to $525.
Ford, General Motors, Nissan and Mazda will be
approaching phase-out levels for the hybrid tax credits on their
vehicles.
The AMT Surprise!
If
you bought a fully credit-eligible hybrid, you still might still get a
much smaller credit than you were expecting, or even worse - none at
all! This has nothing to do with how many hybrid
vehicles the manufacturer has sold. Qualifying for the credit - and how
much of it you can take - depends on how close you come to having to pay
the Alternative Minimum Tax. This is a problem that
often affects many hybrid car buyers who have six-figure incomes and
take a lot of deductions.
The AMT sets a minimum amount of tax you must pay even if you have
deductions that would seem to allow you to pay less. The AMT
disallows a lot of common deductions that are allowed under the regular
code. If the AMT amount is higher, you must pay the AMT.
The general rule when it comes to determining how much of a hybrid tax
credit you get is this: you get NO TAX CREDIT if you have to pay AMT.
Even if you don't have to pay the AMT, it could still take a bite out of
your tax credit. If the difference between your taxes and the tentative
AMT amount happens to be less than the hybrid tax credit, you can only
take part of the credit. (Otherwise, it would make your taxes less than
the AMT.)
Here are several examples to illustrate the computations: Adam, Bob and
Charles each purchased a Ford Escape hybrid SUV in 2008 and each
was expecting to get a $3,000 tax credit.
At tax time, Adam finds that his tax bill is greater under the AMT than
it is under the regular code, so he must pay the AMT. Adam's Ford
Escape can't help him escape his big tax bill. He gets no
hybrid tax credit.
Bob's regular taxes, on the other hand, are $3,500 more than what
he would have to pay under AMT. So he doesn't have to pay AMT and he
gets the full $3,000 tax credit.
Charles doesn't have to pay the AMT, either. However, his taxes are just
$1,200 more than he would have had to pay under AMT. So instead of the
$3,000 credit he was expecting, he gets a credit of just $1,800.
So,
the bottom line is that you need to look carefully at your anticipated
income and tax liability in the year you are anticipating buying the
hybrid before you factor in the available tax credit as part of your
buying decision.
Change for 2009 only:
the AMT patch provided as part of the
Emergency Economic Stabilization Act
allows otherwise nonrefundable personal credits to offset the AMT for
2009. That means that even if you pay AMT, if you bought a qualified
hybrid in 2009, you could still benefit from the credit.
PHASEOUT OF THE
CREDIT The alternative motor
vehicle tax credit will begin to phase out once a manufacturer sells
more than 60,000 qualifying vehicles. The IRS has stated:
"Taxpayers may claim
the full amount of the allowable credit up to the end of the first
calendar quarter after the quarter in which the manufacturer records
its sale of the 60,000th vehicle. For the second and third calendar
quarters after the quarter in which the 60,000th vehicle is sold,
taxpayers may claim 50 percent of the credit. For the fourth and
fifth calendar quarters, taxpayers may claim 25 percent of the
credit. No credit is allowed after the fifth quarter."
Based on sales data, the IRS has set phaseout
periods for the following vehicles.
Phaseout for Ford and Mercury
hybrid vehicles
Begins: April 1, 2009.
100% credit: for eligible vehicles purchased before April 1, 2009.
50% credit: for eligible vehicles purchased between April 1, 2009, and
September 30, 2009.
25% credit: for eligible vehicles purchased between October 1, 2009, and
March 31, 2010.
0% credit: for vehicles purchased April 1, 2010, or later.
Here are the 50% credit amounts for Ford and
Mercury vehicles purchased from April 1, 2009, and September 30, 2009:
- 2005, 2006, 2007 Ford Escape 2WD:
$1,300
- 2008, 2009 Ford Escape 2WD: $1,500
- 2005, 2006, 2007, 2009 Ford Escape 4WD:
$975
- 2008 Ford Escape 4WD: $1,100
- 2010 Ford Fusion: $1,700
- 2008, 2009 Mercury Mariner 2WD: $1,500
- 2006, 2007, 2009 Mercury Mariner 4WD:
$975
- 2008 Mercury Mariner 4WD: $1,100
- 2010 Mercury Milan: $1,700
Here are the 25% credit amounts for Ford and
Mercury vehicles purchased from October 1, 2009, and March 31, 2010:
- 2005, 2006, 2007 Ford Escape 2WD: $650
- 2008, 2009 Ford Escape 2WD: $750
- 2005, 2006, 2007, 2009 Ford Escape 4WD:
$487.50
- 2008 Ford Escape 4WD: $550
- 2010 Ford Fusion: $850
- 2008, 2009 Mercury Mariner 2WD: $750
- 2006, 2007, 2009 Mercury Mariner 4WD:
$487.50
- 2008 Mercury Mariner 4WD: $550
- 2010 Mercury Milan: $850
Phaseout for Honda hybrid vehicles
Begins: January 1, 2008.
100% credit: for eligible vehicles purchased before January 1, 2008.
50% credit: for eligible vehicles purchased between January 1, 2008, and
June 30, 2008.
25% credit: for eligible vehicles purchased between July 1, 2008, and
December 31, 2008.
0% credit: for vehicles purchased January 1, 2009, or later.
Phased-out hybrid tax credit
dollar amounts for Honda hybrids
Here are the 50% credit amounts for January 1,
2008, through June 30, 2008:
- 2007 Honda Accord Hybrid AT: $650
- 2007 Honda Accord Hybrid Navi AT: $650
- 2007 Honda Civic Hybrid CVT: $1,050
- 2008 Honda Civic Hybrid CVT: $1,050
Here are the 25% credit amounts for July 1,
2008, through December 31, 2008:
- 2007 Honda Accord Hybrid AT: $325
- 2007 Honda Accord Hybrid Navi AT: $325
- 2007 Honda Civic Hybrid CVT: $525
- 2008 Honda Civic Hybrid CVT: $525
Phaseout for Toyota and Lexus
hybrid vehicles
Begins: October 1, 2006.
100% credit: for eligible vehicles purchased before October 1, 2006.
50% credit: for eligible vehicles purchased between October 1, 2006 and
March 31, 2007.
25% credit: for eligible vehicles purchased between April 1, 2007 and
September 30, 2007.
0% credit: for vehicles purchased October 1, 2007, or later.
Phased-out hybrid tax credit dollar
amounts for Toyota and Lexus hybrid vehicles
Here are the 50% credit amounts for October 1,
2006 through March 31, 2007:
- 2005 Prius: $1,575
- 2006 Highlander 4WD Hybrid: $1,300
- 2006 Highlander 2WD Hybrid: $1,300
- 2006 Lexus RX400h 2WD: $1,100
- 2006 Lexus RX400h 4WD: $1,100
- 2006 Prius: $1,575
- 2007 Camry Hybrid: $1,300
- 2007 Lexus GS 450h: $775
- 2007 Lexus RX 400h: $1,100
- 2007 Toyota Highlander Hybrid: $1,300
- 2007 Toyota Prius: $1,575
Here are the 25% credit amounts for April 1,
2007 through September 30, 2007:
- 2005 Prius: $787.50
- 2006 Highlander 4WD Hybrid: $650
- 2006 Highlander 2WD Hybrid: $650
- 2006
Lexus RX400h 2WD: $550
- 2006 Lexus RX400h 4WD: $550
- 2006 Prius: $787.50
- 2007 Camry Hybrid: $650
- 2007 Lexus GS 450h: $387.50
- 2007 Lexus RX 400h: $550
- 2007 Toyota Highlander Hybrid: $650
- 2007 Toyota Prius: $787.50
- 2008 Lexus LS 600h L Hybrid: $450
- 2008 Lexus RX 400h 2WD and 4WD: $550
- 2008 Toyota Camry Hybrid: $650
- 2008 Toyota Highlander Hybrid 4WD: $650
- 2008 Toyota Prius: $787.50
7/28/2009 |