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2005 Black Prius - I passed

Discussion in 'Gen 2 Prius Main Forum' started by MBranstein, Oct 10, 2005.

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  1. Bionic

    Bionic New Member

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    Well, I am not a tax expert, but it's my understanding that as of right now, it is a tax deduction, whereas next year it is a flat-out reduction. Therefore unless you already itemize your deductions, you won't make out too well this year, where next year's credit comes right off the top, no matter what. Also, let's say you are right anyway and you get $300 off of your taxes. It costs me about $30 to fill up my tank right now, and I put a tank in every 2 weeks. That means that from now until Jan 1 I'll spend less than $150 in gas. Doesn't look to be "easily gained by gas savings" to me.
     
    #21 Bionic, Oct 24, 2005
  2. MBranstein

    MBranstein New Member

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    Hold on. The current tax incentive is $2000; however, that's a $2000 deduction. A $2000 tax deduction isn't equivalent to $2000 in your pocket. To find the actual in-pocket cost of the $2000 deduction, you need to subtract $2000 from your income. Now, compute your tax liability based on the adjusted income. The in-pocket savings is the difference in your non-adjusted income taxes and your adjusted income taxes.

    For example, assume I make $100,000/yr. Also assume that my tax liability is 40% every year. Therefore, my 2005 tax liability is:

    $100K income * .4 tax rate = $40K tax liability

    If I were to purchase a Prius this year (2005), I could take a $2000 tax deduction. Doing so would effectively reduce my 2005 income to $98,000. Therefore, my adjusted 2005 tax liabiliy would be as such:

    ($100K income - $2K hybrid deduction) * .4 tax rate = $39,200 tax liability

    Therefore, the difference (savings) in my tax liability for purchasing a hybrid in 2005 is:

    $40,000 - $39,200 = $800

    Now, let's suppose we decided to wait until 2006 to purchase our hybrid. The proposed 2006 hybrid rules for a Toyota Prius indicate that buying a Toyota Prius entitles you to approx. $3000 in tax credit. A tax credit is taken directly off of your tax liability - NOT FROM YOUR TAXABLE INCOME.

    Therefore, your 2006 tax liability (assuming you made the same $100,000 in 2006 at the same taxable income rate) would be as such:

    $100,000 income * .4 tax rate = $40,000 tax liability

    Now, applying a $3000 tax CREDIT to the current tax liability would be as such:

    $40,000 tax liability - $3000 Prius tax credit = $37,000 actual tax liability.

    So, putting this all together, what would you rather have? A $39,200 tax liability in 2005, or a $37,000 tax liability in 2006? The different in tax liabilities is $2,200!

    There are several arguments that could be brought against this. For example:

    1. I will not get my 2006 tax credit until March of 2007. So, I'd rather use that $800 in savings this year and bank it because it's more valuable in my pocket now. To counter this, show me a guaranteed investment that after investing $800 will give you a return of $2,200 in 16 months.

    2. I will save more money on gas in the coming months by purchasing my hybrid now rather than later (in 2006). There's no practical way that you will save $2,200 on gas in the next 3 months.

    3. The hybrid credit will run out in 2006 before you get your car. Response: Very unlikely. As long as you've ordered your 2006 now, or soon, you won't be part of this problem.
     
    #22 MBranstein, Oct 24, 2005
  3. Schmika

    Schmika New Member

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    If I understand correctly that only the first 60K hybrids will be eligible for the credit, I suspect that there are going to be two things happening in 2006. Many people will NOT get the rebate because the 60K will be gone quick and dealers will be asking for more than MSRP - Oh $1500 or so, and saying they will split the rebate with the purchaser.

    I predict a lot of gnashing of teeth over this on the PC next year.
     
    #23 Schmika, Oct 24, 2005
  4. MBranstein

    MBranstein New Member

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    The 60K hybrid number is a cut-off point. Once that point has been reached, the tax incentive will cease to apply the quarter afterwards; therefore, people will continue to qualify for the savings for at least 90 more days.

    I would also suggest that you find a Toyota dealer that sells at MSRP now and have them write on your purchase order agreement that you will buy the car at MSRP. I've done this to prevent my dealer from marking up the car above MSRP.
     
    #24 MBranstein, Oct 24, 2005
  5. MNPrius

    MNPrius New Member

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    4 day old owner fully aware of the tax implications - however --the reason: need car sooner rather than later is a very big factor! - Don't assume new purchasers aren't informed, there can be extenuating circumstances!
     
    #25 MNPrius, Oct 24, 2005
  6. MBranstein

    MBranstein New Member

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    I agree - I'm very close to the same boat. My '92 Camry is getting older by the day. I'm hoping to be able to hold out until 2006.

    Sometimes, it's cheaper to dump the old car rather than fix and sell.

    Let's hope many others aren't forced into this decision.
     
    #26 MBranstein, Oct 25, 2005
  7. Bionic

    Bionic New Member

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    I'm the exact same way. My car is limping along as it is. That's part of why I'm so *obsessed* with MY06 info.
    I keep crunching the numbers and trying to figure out what my "cut off" date is... that is, the date after which if the dealer calls I'll tell him to hold the car until January :(
     
    #27 Bionic, Oct 25, 2005
  8. MBranstein

    MBranstein New Member

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    Yeah - that's the trouble with the my06 info. We know pretty much everything that happens with 06's on PriusChat; however, it doesn't seem to be enough.

    Toyota is certainly making this decision difficult for us all - especially those of us who have ailing vehicles.

    Worst case, I'll sell my '92 Camry near X-Mas and borrow a relative's car until my Prius comes in. That way, I'll be gauranteed to get it off my hands before the next big repair comes.

    Until then, Nov. 17th can't arrive soon enough...
     
    #28 MBranstein, Oct 25, 2005
  9. Bionic

    Bionic New Member

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    well now that we're totally off-topic, I was wondering this:
    If you have an old car that is going to die, and you absolutely *have* to take delivery in late '05, would it be worthwhile to donate the older car? That way, you can add the donation deduction to the '05 deduction, and maybe make out pretty well...

    I'm sure it depends on how much your older car is worth, but it's just a thought. We need a tax expert :huh:
     
    #29 Bionic, Oct 25, 2005
  10. MBranstein

    MBranstein New Member

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    I'm not sure if this is national, but donating cars to charities isn't as profitable as it was in the past. Before, you could donate the car and take the blue book value as a deduction. Now, you can only deduct the price at which the that the charity sells the car.

    I agree. We need some hardcore tax junkie on here to explain our options, but then again, each of us has different taxes and owes the government different amounts of money at different times. I wonder if we can easily boil down the hybrid to an equation.

    If I were a financial analyst instead of a software developer, I'd build an entire Excel model to help me.
     
    #30 MBranstein, Oct 25, 2005
  11. pearsonrj

    pearsonrj Junior Member

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    klo2001

    You have managed to completely confuse people with your description of the new tax incentive. It is not a deduction in taxable income, it is a deduction in your taxes owed...

    I hope that is not what you're telling your customers...
     
    #31 pearsonrj, Oct 25, 2005
  12. Trojan

    Trojan New Member

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    I turned down a black package 3 a few days ago. Yesterday I got a call about what I REALLY wanted: a silver package 6. Hooray!
     
    #32 Trojan, Oct 25, 2005
  13. aaf709

    aaf709 Ravenpaw of ThunderClan

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    In September '04 I put my name down on only one list (no deposit) and was told the wait was 1.5 years. In January I started getting calls that one was in and did I want it. This happened 4 times and I turned it down each time as it wasn't what I wanted. I ended up getting it at another dealer.
     
    #33 aaf709, Oct 25, 2005
  14. A2Prius

    A2Prius New Member

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    I ordered an '05 Prius in early January, for December delivery, just to "get in line." Then, once the 2005 Energy Bill (with its tax CREDIT) was signed into law I notified my salesperson that I was changing my order to an '06, with delivery in mid-January or the beginning of February.

    In the meantime I've been feeding the salesperson a steady stream of '06 Prius-related info (a lot of which he didn't know about yet), for which he has been exceedingly grateful. Bottom line: I'll get an '06 and the salesperson has promised to do "something special" for me, in thankfulness for receiving info that apparently he cannot get from Toyota.

    P.S. It isn't unusual for me to see 3 or 4 Priuses when I'm tooling around town in my trusty '00 Civic.

    A2Prius
    Ann Arbor, Michigan
     
    #34 A2Prius, Oct 25, 2005
  15. Cocoatreat

    Cocoatreat New Member

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    well.....all i can say is that i am getting used to my burgandy red 2005!! i totally luv the look... & tho i dont get the 2006 tax incentive.......i am saving gas NOW!! thats enought for me.... at this time i am averaging about 48 mpg....& i am smiling big time!! just went thru hurricane wilma and was without power for 2whole days...... 98% of the residents of miami, ft lauderdale & west palm beach were withOUT power!!! most of us could not get gas becuz the gas stations had no power......when some of the stations opened..(very few) the lines were backed up to 3-4 miles... havent seen anything like this since the 70's gas rationing.....& i'm sitting on a tank full of gas with no worries.........yes! my 2005 was definitely worth not waiting for 2006.........where i may not get the deduction.......thats 60,000 2006 toyotas........they will run out fast i think......
    cocoa :p
     
    #35 Cocoatreat, Oct 27, 2005
  16. Dylan

    Dylan New Member

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    I'll be nice and politely tell you that you are mistaken. The 2006 tax incentive is a tax credit meaning you get every penny of that (estimated) $3150. It is not a deduction like the 2005 incentive. You might have some ticked off customers when they find out how much your misinformation cost them.

    http://www.hybridcars.com/tax-deductions.html
     
    #36 Dylan, Oct 27, 2005
  17. Kiloran

    Kiloran New Member

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    Actually, you can realize it at a rate of ~$800 per quarter by reducing your withholding.
    If you are employed, talk to your HR person.
    If you are self employed, simply reduce your quarterly estimated tax.
    (AMT notwithstanding)
    B)
     
    #37 Kiloran, Oct 27, 2005
  18. MBranstein

    MBranstein New Member

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    Good suggestion - more money in your pocket earlier, but I'd talk it over with my tax person first - strange penalties can arise under certain circumstances.
     
    #38 MBranstein, Oct 27, 2005
  19. Traanya Drinker

    Traanya Drinker New Member

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    I was under the impression the 2005 tax incentive was an "adjustment" not a "deduction." Big difference.
     
    #39 Traanya Drinker, Oct 27, 2005
  20. Dylan

    Dylan New Member

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    Sorry, you're right.

    But either way it's a reduction in your taxable income in 2005 as opposed to a tax credit in 2006.
     
    #40 Dylan, Oct 27, 2005
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