It's Time to Buy a New Car- Can I Buy a Hybrid and Get a Tax Credit?

Tax Tips

In Sunday’s newspapers, there were lots of “end of the year” car sale ads. Since it’s been almost a year since I talked about the tax credit that you can get if you purchase a hybrid car, I thought it would be a good subject for today.

What’s a hybrid car? Its description talks about drive trains powered by both an internal combustion engine and a rechargeable battery. It’s basically a gas saving vehicle.  If you purchase a car which has been certified by the IRS as a “qualified hybrid vehicle,” you might be able to get a tax credit on your tax return. (Tax credit is a subtraction dollar-for-dollar off your bottom line of taxes.)

To see which cars are qualified, go to this website IRS – Hybrid Vehicles. When you review the list, you’ll see that the credit amounts are different from vehicle to vehicle. The more gas a car saves, the larger the credit. The credit for a Honda GX is $4,000 and for a GMC Sierra 2WD Hybrid Pickup Truck — $250. That’s quite a range.

To get the credit you need to purchase such a car before 2010 and be the original owner. Don’t wait too long. Only about the 1st 60,000 purchases from each auto dealer are eligible for the full credit. After that, the credit is slowly reduced to zero. To check for the latest information on a specific vehicle, go the to Fuel Economy.gov website.

After we talked about hybrid cars a year ago, we received quite a few comments from taxpayers who thought they would receive the credit and didn’t. They fell into the “AMT hole” and AMT tax may not have been on their tax return.  In order to get the credit, their “tentative minimum tax” must be less that their “regular tax.” (For an understanding of AMT tax, see the blog, What is AMT and Why Is It on My Return? . Also see TurboTax’s AMT Webinar.

Here’s an example of such a 2006 tax return. You purchased a hybrid vehicle with a credit of $3,000. Your regular tax was $12,000 (Form 1040, Line 44 less credits from lines 47 through 54). Your “tentative minimum tax” was $ 11,000 (Form 6251, line 33). Since your “regular tax” only exceeded your “tentative minimum tax” by $1,000 – you will only get a $1,000 hybrid tax credit, not the full $3,000. And you can’t carry the remaining $3,000 to a future or prior year return. Ugh!  Albert Einstein said, “The hardest thing in the world to understand is the income tax”. And as you can see, the hybrid tax credit fits right into that saying.

For further information:

IRS Tax Tips -Tax Credit for Hybrid Vehicles

IRS – Hybrid Vehicles

IRS Summary of Credit for Hybrid Vehicles

www.fueleconomy.gov website

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