Hybrid vehicle credit

[natiro]

My client just purchased a Prius which will qualify for the hybrid car tax credit in 2006. At least I'm assuming it will. As far as I can tell, the first 60,000 hybrid cars manufactured by each manufacturer will qualify for the credit at 100%. Any thoughts as to how anyone will determine whether the purchased car was one of those 60,000? The dealer doesn't have a clue. My client is concerned about this. I keep telling them that since the credit starts on 1/1/06 and they bought the car on 1/3/06 it's pretty safe to say they will get the credit at 100%. The client is also asking if there is any paper work to fill out to get the credit. As far as I can tell, from reading IRS info and other info I can find, I don't see anything about having to apply for the federal credit. Here in Oregon, we do have to apply to the state to get the state credit. I assume we will just take the credit on the federal tax return as we do for all other credits.

Does anyone know any more about how this credit will be taken on the return and whether there is anything else we need to do? Anyone know of any good resources for more information?

Thanks.

[Snaggletooth]

Excellent Question

How on earth would anyone know this? If it helps any, how would an IRS auditor know either? Of course, they don't care because the burden of proof is on the taxpayer.

The manufacturer (not the dealer) is the only hope if what you say is true. This implies that the manufacturer has been in contact with the IRS and has carefully concocted a VIN list of vehicles which will qualify. I'm sure these regulation-conscious manufacturers and the administrative-savvy IRS have got this one down pat. (Right)

Have your client talk to the dealer - or talk to him yourself. The dealer is probably using this Hybrid credit as a sales tool. He could be sued if he uses this credit to promote, but then his customers have their credit disallowed.

This one, like many other snafus in the past, is another classic case of bungling by the promotors of the legislation/regulation. Often things become law which create nightmares in the enforcement thereof, and the usual result is such chaos that no one will attempt enforcement. (This statement is not limited to tax law)

My prediction? Look for a regulation ruling from IRS which allows all such purchases to be qualified for calendar 2006, and then a termination date for some point in the future. This is what the idiots should have done to begin with.

Natiro, as usual, lots of empty rhetoric from me, and not much in the way of solutions. Have a great tax season.

Ron J.

[LCP]

It may be unclear (what's new?) but it shouldn't be that difficult .....

If based on "manufactured" they'll track it by VIN

If based on "sold" they'll just cut it off as of a certain date (hopefully with notice and some leeway).

[Bees Knees]

Usually Congress gives IRS the authority to announce a "cut-off" date for provisions, like what they did to the MSA.

I think the MSA deduction was initially limited to the first 750,000 or so (just a guess). The IRS never did announce a cut off because very few signed up for the thing. The cut off came when Congress replaced it with the HSA.

[pog]

Amt

Keep in mind that the new hybrid vehicle tax credit will not reduce AMT. If your client is already subject to AMT, the credit will provide no benefit. If your client isn't subject to AMT, the buffer between his regular tax and the TMT could easily be less than the credit so that he would not get the benefit of the full amount. Unless Congress makes its usual one-year-at-a-time patch to the AMT for 2006, your client will even more likely be in the AMT.

[Unregistered]

My understanding is that the 60,000 is in the law so the IRS can't change it by reg. The idea was to aid sales of domestic hybrids by limiting the number of qualifying foreign cars.

[Bird Legs]

Hybrid Cars

How would limiting the number of applicable cars to 60,000. help the sale of domestic
hybrids? Maybe Honda & Toyota sold 30,000 cars each. That would shut out the
sale of any domestic cars.
Maybe I misunderstand the law on this, and is the limit 60,000 cars total or for each
manufacturer?

[Gene V]

credit

Click on this web site for estimate dollar amount for 2006 credit

http://www.hybridcars.com/tax-deductions-credits.html

[John of PA]

Info on Hybrid Car Credit

I have a very nice report explaining the Hybrid Tax Credit, which, by the way, we won't be doing until we are preparing the 2006 tax returns. I can fax it if you wish. (It's a PPC Tax Action Memo).

[natiro]

John of PA

Thanks. Actually I subscribe to that service and I'm sure I read that memo when it first came out. What date is the memo from? (I'm having a hard time linking to it at the moment.) I realize we won't be taking it until 2006 but my client is nervous that we aren't doing something now that we should be doing so they can take the credit next year. I keep telling them to stop worrying about it, but would like to show them something so they don't have to just take my word for it.

I think it's ridiculous to write the law to say "the first 60,000 hybrids manufactured by each manufactuer." But it's true. . .it's not much different than the first 750,000 MSA accounts. Good thing no one had to prove they were really the 750,000th if there were more than two of them signing up at the same time!!!

[natiro]

hybrid credit

I stand corrected. Thanks John of PA for your suggestion about the PPC Memo. I was able to get the link and in reading the article noticed that they referred to the first 60,000 from each manufacturer SOLD, not MANUFACTURED. So I went back and read the code, again, for what feels like the 40th time, and I now see where it says "sold" there, too, which I missed every other time. This makes much more sense to me, as it's actually measurable. Sorry to post the misinformation in my original post. I'm amazed how I can read the code so many times and still miss one of the most important words!!!

Thanks everyone for the input.

[John of PA]

Hybrid Credit

Actually, I have a Prius on order and should be taking delivery soon. My understanding is, the auto companies will provide all the information in the form of a chart, all we do is look it up. PPC, etc. will provide the chart, and possibly our tax software will include it. I'am really not sure if buying the car earlier in the year gives you a higher credit, but I kind of doubt thats the way it would work. We probably won't have the chart until year-end.

[John of PA]

Thanks. Actually I subscribe to that service and I'm sure I read that memo when it first came out. What date is the memo from? (I'm having a hard time linking to it at the moment.) I realize we won't be taking it until 2006 but my client is nervous that we aren't doing something now that we should be doing so they can take the credit next year. I keep telling them to stop worrying about it, but would like to show them something so they don't have to just take my word for it.

I think it's ridiculous to write the law to say "the first 60,000 hybrids manufactured by each manufactuer." But it's true. . .it's not much different than the first 750,000 MSA accounts. Good thing no one had to prove they were really the 750,000th if there were more than two of them signing up at the same time!!!

THE Memo is PPC Tax Action Memo TAM-1116, dated Sept. 27, 2005, Titled "2005 Year-end Tax Planning Includes Hybrid Vehicle Decisions"

[Unregistered]

I have a question about the 2005 credit. Is just the base price of the car used? What about the extended warranty portion. Any one that buys one of these should seriously think about the warranty. This new technology could be costly. Also, before you buy the extended warranty from your friendly dealer go to www.priuschat.com and it is available over a thousand dollars cheaper than the dealer is asking. At least it was here in Florida.

[John of PA]

No credit in 05

I have a question about the 2005 credit. Is just the base price of the car used? What about the extended warranty portion. Any one that buys one of these should seriously think about the warranty. This new technology could be costly. Also, before you buy the extended warranty from your friendly dealer go to www.priuschat.com and it is available over a thousand dollars cheaper than the dealer is asking. At least it was here in Florida.

There is no credit in 05, it starts in 06. For 05 (cars bought in 05), there is still the clean fuel deduction of 2000 on the front page of the 1040 under adjustments to income. Toyota gives an 8 year warrenty on the batteries, even if you did not get the extended warrenty. Good point, time will tell as to how long these batteries last; but I for one am willing to be a pioneer here, as we need these cars bad, for both pollution as well as reducing our dependence on foreign oil.