Tax Credit

Tax credits are amounts off the taxes owed rather than a deduction from your income.
IIRC, the credit is not a refundable credit, which means if the credit reduces your tax below zero, you use zero tax to determine how much your refund will be. So if your tax is zero, your refund will be all of your withholding for 2006.
Lastly, don't neglect state tax credits. And if you're really unsure visit a tax professional in the area. The fee for preparation will be small in comparrison to the amount of refund you'll likely receive.

Disclosure: I'm an accountant, but with limited tax experience (1 busy season).

 

<div class='quotetop'>QUOTE(Kathy_23 @ Apr 30 2006, 02:46 AM) [snapback]247501[/snapback]</div>

Think of it like this, though this is a simplification: First, you calculate your tax. (This is line 44 of the 2005 Form 1040; the 2006 version of this form may have different line numbering.) Then you subtract the tax credit for buying the new qualifying hybrid. In the case of the Prius, you subtract $3150. The result at this point must not be less than zero, so if you have a negative number you must change it to zero. (This is line 57 of the 2005 Form 1040.) Finally, you subtract your tax withholding and any estimated taxes you paid in. If the result is positive, you owe money with your return, and if negative, that's your refund.

There are federal income tax credits that can result in a negative number at that one point there, but this isn't one of them.

If your 2006 federal income tax situation is such that you must pay the Alternative Minimum Tax (AMT), then as far as I know you will not benefit at all from this tax credit.

 

Hi all - Great board you have here! This has been very helpful reading.

So I am buying a Prius right now. In my case (approximates)...

Last year I owed 5,500 in taxes
Last year I paid 6,000 in taxes
My refund last year was $500

So if this stayed the same this year, with the Prius Tax Credit, I would basically get a refund of $3,650. Is that correct? I know it's abit simplified, but I just wanted to make sure I have my head around this.

Thanks!

 

<div class='quotetop'>QUOTE(EmptyG @ Apr 30 2006, 06:07 PM) [snapback]247710[/snapback]</div>

Yes, that's a good way of looking at it.

 

<div class='quotetop'>QUOTE(EmptyG @ Apr 30 2006, 06:07 PM) [snapback]247710[/snapback]</div>

Why would you have paid $500 more in taxes than you owed last year? Oh, I see, you had $6000 withheld from your pay, so you got $500 back. So yes, if absolutely everything else remained the same, your refund would be $3150 bigger.

 

Great, thanks for the quick response

I ordered my Prius yesterday - should take about 6-8 weeks to arrive.

I'm REALLY looking forward to getting it! Thanks again for the help, I am sure to have more questions as they come up