Many angry Prius parents come tax time??

<div class='quotetop'>QUOTE(DaveinOlyWA @ Aug 25 2006, 11:58 AM) [snapback]309348[/snapback]</div>

How do you figure you could recover $3,000 in "just a few years?" Gas savings? Even at $3 a gallon, it doesn't pencil out.

The tax credit was half the reason I purchased a hybrid. It took a little of the sting out of spending about $6 more for the hybrid over a conventional ecomony car.

The other half was buying my way into the HOV lanes, which can save me an hour a day on some of my buinsess travel.

If it was not for those two things, I probably would have bought a regular Honda Civic or something comparable.

 

<div class='quotetop'>QUOTE(Curtis SAC @ Aug 25 2006, 04:59 PM) [snapback]309476[/snapback]</div>

I was shopping for a car before I knew anything about the credit. I'd been thinking of a Prius for years, but heard they were hard to get, so I shopped for smaller cars. After test driving a few and then test driving a used Prius, there was no way I was going to settle for a car that was a few thousand less but felt underpowered and cheap vs a car I loved. So yes, I spent around $6000 more, but I expect that I'll have the car at least 10 years - that's $600 a year more, about $50 a month more, and I figure I save about $60 a month in fuel savings (using $3 a gallon). So if I get any or all of a $3150 credit, that's fine - I'll still be happy with my Prius when tax time rolls around, not angry about the tax laws.

I DID hear about the tax credit a few days after I bought my car last April, and everything I read about the credit said 'consult your accountant'. If I had known about the credit before I was buying a car, I would definitely have consulted an accountant if I thought the credit would be a serious factor in deciding which car to buy. But for me the decision to buy a Prius was because I like it so much better than other alternatives I saw for a lower sticker price.

 

<div class='quotetop'>QUOTE(Curtis SAC @ Aug 25 2006, 01:59 PM) [snapback]309476[/snapback]</div>

if you are just looking at the cost of gas you wont. but try buying any other car, driving it for 2 years, then selling it for 90-110% of what you paid for it. then figure out what you would have sold your 2004 Accord for if it had 25,000 miles on it then figure the difference.

i know two people who upgraded to the 2006 from a 2004 and one sold his 2004 for the same price he paid for it.

after the rear wiper, destination charges and title i paid 20,660 for mine. drove it for 25 months, put 28,000 miles on it then it was totaled. the other insurance company's initial estimate of payoff is 21,500. i believe that payoff will more than make up for any 3000 tax credit

 

<div class='quotetop'>QUOTE(PushMower @ Aug 28 2006, 01:29 AM) [snapback]310440[/snapback]</div>

So what happens if you don't claim the kids? If they are a $1000 DEDUCTION, and you have 3, your taxable income goes down by $3K. If your marginal tax rate is 25%, your taxes would decrease by $750. If you don't claim them your TAXES go down by $3150. - Net $2400. Since you said you would get nearly $3K without kids, your net would be ~$2200.

Just numbers, but I wonder if it would be a better choice. I don't think the IRS says you HAVE to claim dependants (though maybe they do).

Thanks for the warning. I was also under the impression that if you didn't get hit with AMT, you got the full $3150 credit. We still would have bought the Barcelona, only a reduced tax credit will make it more expensive than my '04, not less

 

So, basically the upshot of what I've heard is that the you can't use the Prius credit to reduce the taxes you owe below $0. If you paid less than $3150 in taxes last year (i.e. the amount of money withheld PLUS the amount you sent the IRS on April 15), you may not be able to get the full credit. Now, how does the AMT come into this? My understanding was that the AMT was just there to catch people who make a lot of money. If the original poster doesn't come close to having to claim the AMT, I don't understand how the can affect them. PushMower: Did you pay less than $3150 in taxes last year? If you paid more than that, were you subject to the AMT?

Does anyone know if there's a way to spread the Prius tax credit over multiple years? Or perhaps delay taking the Prius credit to another year when you could claim the whole thing? Or maybe there's a way to work other tax credits to defer them to next year? I guess the take-away message is people that are concerned should just talk to an accountant.

Side note (and not related to any posts I've read on this thread): It's amazing to me how little some people understand about the tax system. I've talked to several people in person and read several posts on here where it's evident that people don't realize that "withholding" from your paycheck and the check on April 15 is all the same pot of money.

 

<div class='quotetop'>QUOTE(Betelgeuse @ Aug 28 2006, 09:02 AM) [snapback]310487[/snapback]</div>

and there you have it folks. It is exactly the same reason I get a mechanic to work on my car. If you don't understand it, pay someone who does.

I understand taxes enough to know that the 2006 credit would do no more for me than the 2005 deduction, so I got the car in Sept 2005 rather than wait. The math is easy, but you can't read the instructions for just one form.

 

<div class='quotetop'>QUOTE(Betelgeuse @ Aug 28 2006, 09:02 AM) [snapback]310487[/snapback]</div>

Interesting combination of statements
AMT was created to make sure people couldn't avoid paying taxes with a bunch of deductions, shelters, etc. Yes, rich people would be the target because the Average Joe wouldn't have shelters anyway. BUT, the AMT has not increased while the Average Jane's income has gone up with inflation. AMT went into law in 1969, targeted toward RICH people making $200K a year (in 1967) and paying no taxes.

Thus, in theory, someone making just over $45K COULD hit AMT if they have a lot of deductions. If you hit AMT, you lose a lot of deductions, including state and local income taxes, used by the average taxpayer who is not trying to skip out AT ALL. You end up paying the AMT rate on all income over the break point (with the deductions disallowed)

Let's say (for round numbers and nothing specifc to anyone) you made $60K, had $20K in deductions. Your taxable is $40K. BUT if you hit AMT for some reason, some of the deductions are removed. Let's say $10K. You now pay the regular tax on the $40K PLUS 26% of the 'disallowed' $10K, or $2,600. If you really were a weasel and managed to get your taxable income down to $0, the AMT is supposed to catch you and you will owe 26% of the full $60K. This would actually be MORE than if you had just forked over what you would owe with NO deductions. There might be some feature that makes sure you don't have to do that. But if you are a tax cheat, I think they should be able to stick you for it

Tax Foundation link

 

<div class='quotetop'>QUOTE(bruceha_2000 @ Aug 28 2006, 09:57 AM) [snapback]310511[/snapback]</div>

Right. Good point. What I meant to say was:

C'mon! Can't you read my mind and understand what I mean?

 

<div class='quotetop'>QUOTE(PushMower @ Aug 28 2006, 10:56 AM) [snapback]310559[/snapback]</div>

Wait a minute... from reading through this thread and the others on this whole thing, if your taxes (the total of what you owe) is greater than your TMT, then you can take some or all of the deduction, depending on the exact numbers. Nothing says that you can't take the credit if the TMT is above a certain point...

for example, if i'm paying 10k in taxes (including other credits) and my TMT is 4k, i can still take the full credit, since 10k-4k>3150, right? In your own words, HYBRID CREDIT < (regular tax - other tax credits) - TMT

 

Well... I don't see why it's so hard. Of course a tax credit isn’t going to give everyone the same benefit. It's a tax CREDIT, meaning, depending on your tax situation you might get the full benefit or maybe nothing at all. I think most people who can afford the 25k prius makes enough money to get screwed enough on taxes to get the full benefit. Any tax deduction will affect everyone differently.

Personally, my wife and I make like 90k together with zero kids, so yes, the tax credit for me is good, I will get 100% of the benefit. I also have an 18k a year write-off from my house. But no kids.

If anyone thought a tax credit was the same thing as cash in your hand you obviously underestimate the IRS.

 

Wow, my head is swimming after reading all of these tax credit threads!

Does anybody know whether or not the IRS's W-4 Withholding calculator takes into account the AMT? I check our withholdings with the calculator a couple of times each year and when I used it in June, I entered the $3150 credit. Then I changed our withholdings based on the results.

 

I'm trying to dig into this a bit deeper, and I found one interesting thing:

Anyone claiming the Qualified Electric Vehicle Credit must attach the AMT computation form (6251) to their tax return. See the instructions to form 6251 (the AMT computation form) on page 1, under the heading "Who Must File," second bullet point.

So it is not just form 8843 that you need to file, but also 6251.



<div class='quotetop'>QUOTE(4chi @ Aug 28 2006, 05:16 PM) [snapback]310743[/snapback]</div>

Ooops, sorry, it is form 8910, the Alternative Motor Vehicle Credit form, not 8843, that we will file.

Nevermind!

 

<div class='quotetop'>QUOTE(4chi @ Aug 28 2006, 05:25 PM) [snapback]310743[/snapback]</div>

But according to Form 8910, you still must submit form 6251 with form 8910. Bottom line, if you want to claim the credit, you have to go through the laborious process of form 6251 (computing whether you are hit with the AMT), even if you are confident you'll owe no AMT.

 

<div class='quotetop'>QUOTE(4chi @ Aug 28 2006, 04:47 PM) [snapback]310749[/snapback]</div>

In my experience, all major tax software asks you during the "interview" process the questions that would determine if you are hit with AMT. For example, the one I used last year asked for the home mortgage interest amount, and then asked "how much of that was used for something other than to buy or improve your house?" That was an AMT question, since mortgage interest on the home is allowed under AMT, but home equity loans used for other purposes aren't. So, if you're using any decent tax software, it's doing the AMT calculations behind the scenes, and it should nicely spit out the admittedly laborious form 6251 when you're done.

If you're doing pencil and paper, it's more work. If you're using an accountant, they may charge you more.

 

<div class='quotetop'>QUOTE(Taco Mel @ Aug 28 2006, 05:51 PM) [snapback]310751[/snapback]</div>

I used turbotax last year for the first time, and I agree. And if you're doing it by hand, that 6251 looks like a real pain. Just wanting to let me fellow chatters know what they are going have to do to get the credit.