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Tax credit...?

Discussion in 'Gen 2 Prius Main Forum' started by Kross, Apr 1, 2006.

  1. Kross

    Kross New Member

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    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!
     
  2. jw_teacher

    jw_teacher Junior Member

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    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.
     
  3. Gregor

    Gregor New Member

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    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
     
  4. galaxee

    galaxee mostly benevolent

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    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.
     
  5. Gregor

    Gregor New Member

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    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.
     
  6. bgdrewsif

    bgdrewsif New Member

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    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...
     
  7. ChuX

    ChuX New Member

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    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?
     
  8. dalemccl

    dalemccl New Member

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    <div class='quotetop'>QUOTE(ChuX @ Apr 1 2006, 08:44 PM) [snapback]233584[/snapback]</div>
    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.
     
  9. sub3marathonman

    sub3marathonman Active Member

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

    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.
     
  10. ChuX

    ChuX New Member

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    dalemccl, thanks for clearing up the issue for me.
     
  11. Gregor

    Gregor New Member

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    <div class='quotetop'>QUOTE(galaxee @ Apr 1 2006, 06:19 PM) [snapback]233489[/snapback]</div>
    We may still be able to work this out. I create most of the tax liability and my spouse's income is about 5% of the total. I am wondering if filing separately would allow me to take advantage of the full "nonrefundable" tax credit for the hybrid and my wife to take the "refundable" $2000 child tax credit on her extremely modest income. Any thoughts?

    thanks,
    Gregor
     
  12. Kross

    Kross New Member

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    Thanks guys!
     
  13. EricGo

    EricGo New Member

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    <div class='quotetop'>QUOTE(Gregor @ Apr 2 2006, 03:49 PM) [snapback]233839[/snapback]</div>
    Hi Gregor,
    I don't think there is a much better way to figure this out than to prepare your taxes each way, and see which is the lesser tax liability. Although the standard deductions have been changed to eliminate the marriage penalty, the tax brackets differ between single and head of household and filing jointly.

    Tax prep is a pain in the butt, but in your situation I'd go through the exercise. Please let us know what you come up with.
     
  14. Gregor

    Gregor New Member

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    <div class='quotetop'>QUOTE(EricGo @ Apr 2 2006, 04:27 PM) [snapback]233849[/snapback]</div>
    Well it does not look good for stretching the credit by filing separately unless, once again, you have a certain minimum income. We looked at putting the child tax credit on my wife's income and the hybrid tax credit on mine. Believe it or not, a person who does not make a certain minimum income is not even able to claim the full "refundable" child tax credit. The IRS form where we worked this out indicated to us that if you made less than $11,000 then you were not going to get any more back for the child tax credit then you had put in.

    An example: suppose you made $4000 and paid $400 in taxes (not unrealistic for a half day preschool teacher.) Suppose also that you had two kids and wanted to claim the child tax credit, $1000 per child. You are only going to get back the $400 you put in because you earned less than $11,000. (IRS form 8812 Additional Child Tax Credit.) However if your Earned Income was a minimum of $24,000, then you could claim the entire $2000 tax credit, regardless of whether you had paid anything in. (The math is explained on the form.) But the point seems to be that someone who is just scraping buy is not going to an IRS check to support their kids while someone who is making a more comfortable income will get paid by the IRS.

    I would love it if someone would please prove me wrong. :)

    thanks,
    Gregor
     
  15. fshagan

    fshagan Senior Member

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    <div class='quotetop'>QUOTE(ChuX @ Apr 1 2006, 06:44 PM) [snapback]233584[/snapback]</div>
    As someone said, you are probably thinking about the refund of monies you paid in, right? If so, you would get even more back with an additional credit, unless you are under the threshold where you don't pay any taxes. You can't get back more than your total tax liability.

    These are really rough numbers, and don't take into account personal exemptions, etc. But for the sake of argument, here are some rough, in the ballpark figures for taking advantage of the tax credit based on 2006 taxable income:

    A single person without any other deductions would have to be at about $25,000 in taxable income to take full advantage of the credit (you pay 10% of the first $7,550 in income and then 15% of the amount after that, so that's $750 + 2618). A married couple would have to be at about $26,500 to have a tax liability over $3,000. Both of those are without considering that you get a personal exemption for you, spouse, kids, etc. But as a nice round number, it might help. If you're not earning above this level, you probably shouldn't be buying a new car anyway unless you've saved and are paying cash. In any case, if you are under $25,000 a year, my advice would be to avoid the debt of a new car and not be tempted by the idea of a tax credit.
     
  16. EricGo

    EricGo New Member

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    <div class='quotetop'>QUOTE(Gregor @ Apr 2 2006, 10:20 PM) [snapback]233979[/snapback]</div>
    AFAIK, the Additional Child Tax Credit is for low income families. The $1000 per child tax credit is different. It is a line item on the second page of the 1040.
     
  17. Gregor

    Gregor New Member

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    <div class='quotetop'>QUOTE(fshagan @ Apr 2 2006, 11:05 PM) [snapback]234000[/snapback]</div>
    I agree with most of this, but if you have bought a house, all of the interest on the loan is deductible from the income on which you owe taxes. If you have two kids, ($2000 child tax credit,) and have a home loan, as is our case, you have to earn more like $65,000 to take full advantage of the $3150 Prius tax credit!
     
  18. fshagan

    fshagan Senior Member

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    <div class='quotetop'>QUOTE(Gregor @ Apr 4 2006, 08:05 AM) [snapback]234688[/snapback]</div>
    Yeah, too bad you aren't paying more in taxes so you can take advantage of it! :p

    Seriously, reducing your tax liability to zero can't be considered a bad thing, any way you slice it.
     
  19. Gregor

    Gregor New Member

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    <div class='quotetop'>QUOTE(fshagan @ Apr 5 2006, 12:06 AM) [snapback]235080[/snapback]</div>
    Unless you justified buying a car that was more than you wanted to spend by thinking that you would be getting the full tax credit back.
     
  20. Kross

    Kross New Member

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    Okay, so I purchased and drove home my (Brand Spankin' New) Prius today *bows* ^_^ Thank you, Thank you... In my excitement to actually own the Prius, I forgot to ask the Finance lady at the end as to if she needed to give me any forms for the Tax credit... :unsure:

    Was she supposed to? Or do you just note it as credit when you do your taxes and it requires no special forms? (Since the vehicle is registered under your name anyway)

    Sorry to resurrect this topic mods!