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Hybrid Tax Credit Not Family Friendly

We just finished our income taxes. Because we have children, basically, we will not receive one dollar of the $2,100 credit we were told we would receive when we purchased our 2006 Civic Hybrid in May of 2006.

We, however, really enjoy our Civic hybrid and enjoy the efficiency, comfort, and how clean it burns fuel. Oh well, another unexpected expense we have to put up with.

Hi Ed:

___I assume you got nicked by the AMT then? Not all is lost wrt that monster … Currently, it can build as a credit to offset future AMT intrusions but Congress is working on a provision to let you take it back for any and all deductions from 08 forward. Not sure if this is law or will become law but they are working on it given how many people get killed with the darn thing.

___Good Luck

___Wayne

Yes, but I wish they were clearer about how they explained this tax credit.

Repost: Originally posted on the poll thread at another hybrid site ;)

Just got an email from an Internet sales rep at an undisclosed dealer (not interested in burning them). The email informed me that the Tax credit [I] now qualify for in the amount of $1,575.00 reduces to only $787.50 on April 1, 2007 I replied informing the dealer that they should reframe from claiming that I qualify for a full tax credit without full knowledge of my annual income, home ownership and number of dependents.

When I was looking for Prii, I filled out many of the online inquiries. I ended up buying the car off the show room floor though and got a slightly better deal than the internet sales team were able to muster.

Yes, thanks for sharing that.

Hi all--

We bought two hybrids this year, a Prius (one day before the 50% cut in September) and my HCHII, so we were eligible for $5,350. We got $4,400 of that.

I agree that it's a little misleading, though not on the part of the automakers -- on the part of the Federal government. Yes, they'd love to encourage energy independence (backhanded as it is with the 60,000-unit cutoff), but only if you don't make too much money already or take deductions for kids or education or other energy home improvements.

Oh well. Like Ed said, we have great cars and have an average household FE of around 50. Speaking of which, I'll be posting my first hypermile tank tomorrow after I fill up tonight! --RN

I wish they could provide it in some type of rebate where ALL people are encouraged to buy these great cars-- last tank 90 mpg. I think we would see more hybrids leaving the dealerships.

I wish they could provide it in some type of rebate where ALL people are encouraged to buy these great cars-- last tank 90 mpg. I think we would see more hybrids leaving the dealerships.


WOW! Nice work!

Thanks... We will keep trying. Our goal is 100 mph.


WOW! Nice work!

I'm not sure if this was posted elsewhere, but I found this on GreenHybrid.com. I wish I saw this before. Now if we can get the dealerships & legislators to understand this as well.


Hybrid Tax Credits & Alternative Minimum Tax (AMT)

--------------------------------------------------------------------------------
When considering the economics of buying a hybrid car, a shopper’s first best question has nothing to do with gas consumption, maintenance costs, or resale value. Surprisingly, the most important dollars-and-sense consideration is whether or not you pay the Alternative Minimum Tax (AMT). The answer to that question will determine if you qualify for the federal hybrid tax credit—a few hundred dollars or a couple of thousand dollars, depending on the vehicle purchased and when you buy it.

Unfortunately, many of the consumers most likely to buy a hybrid—prosperous but not ultra-wealthy families with kids and mortgages—are the most likely to pay the AMT. Therefore, a core group of hybrid shoppers will not receive the well-publicized tax credit. This loophole calls into question the federal government’s ability and commitment to encouraging consumers to conserve energy by purchasing a hybrid.

What is the AMT?
The history of the AMT dates back to the Tax Reform Act of 1969. The goal of the legislation was to prevent millionaires from exercising every possible credit and loophole, and thus entirely evading taxes. Sounds like a good idea? However, because the rates were not adjusted for inflation, the AMT now affects more and more of the middle class as well as the rich. According to the New York Times, nearly 30 million tax payers will be affected by 2010.

A few AMT rules-of-thumb:

• If you owed AMT in the past, you are likely to pay it again.
• The larger your family, the harder it is to escape the AMT.
• Homeowners with incomes between $150,000 and $400,000 are very likely to be subject to AMT.
• Residents of California, New York, and any other state that charges state income tax are more likely to fall into the AMT bucket.

The exceptions:
• Single people earning between about $25,000 and $115,000 should escape AMT, and therefore find the hybrid tax credit useful.
• If you earn more than $750,000 per year, then your taxes are likely to exceed the AMT. The hybrid tax credit would be allowable.

These are rough guidelines. See a tax professional for detailed advice.

Hybrids, AMT, and Conservation
As long as the AMT remains in effect, any future legislation that gives tax payer credits for energy conservation will exclude the growing number of Americans who pay AMT. Any serious government proposal about encouraging consumers to buy hybrids, plug-in hybrids, electric cars, or flex-fuel vehicles via tax credits must consider the effects of the AMT.

Hi Ed:

___There is still hope as those AMT $’s taken away are available to offset future AMT incursions as I understand the law today? Fortunately, this should be getting fixed … There was a great story in the Christian Science Monitor today that you may be interested in? We got smoked by the darn thing this year hard and I hope it disappears forever! It is one thing to earn millions per year and shelter everything to avoid it and it is altogether something else to earn 10% of that get murdered because our pay is on a W2 :(

A dreaded tax is slated to be fixed.

Lawmakers have vowed to revise the alternative minimum tax, which is imposing higher taxes on 4 million middle-class households this year. (http://www.csmonitor.com/2007/0413/p01s03-usec.html)

http://www.cleanmpg.com/photos/data/2/AMT_-_Where_your_Tax_dollars_go.gifAlexandra Marks and Ron Scherer - The Christian Science Monitor - April 13, 2007

SOURCE: THE HERITAGE FOUNDATION/RICH CLABAUGH - STAFF

NEW YORK - If you think your taxes are bad this year, wait until next April 15.
Unless Congress acts relatively soon, millions more Americans will find that the tax refund they expected will disappear – swallowed up by the alternative minimum tax (AMT), a levy originally designed to make sure that millionaires pay up.

Indeed, as Americans root through receipt-filled shoeboxes to complete this year's 1040, fixing the AMT has become a priority in Congress. Lawmakers on both sides of the aisle agree something must be done, and they agree a fix will mean billions of dollars in lost revenue for US coffers. But there's little agreement on how to pay for the repair: Many Democrats envision a tax increase for the wealthy, while many Republicans favor the elimination of some broad-based deductions, like local tax exemptions. The two sides don't even concur on how much revenue will be lost: Some put the figure at as little as $250 billion over the next decade, others as high as $1 trillion.

Given the lack of consensus, the first question lawmakers will be haggling over is whether to do a one-year "patch" of the tax to give middle-income homeowners a break or to try for a long-term overhaul.

Lawmakers feel sense of urgency

Either way, congressional leaders say something will be done to fix the problem.

"It's very important. It's my No. 1 priority," says Rep. Charles Rangel (D) of New York, chairman of the House Ways and Means Committee.

The committee's ranking Republican, Rep. Thomas Reynolds of New York, agrees the AMT must be tackled this session. "If we don't do something to fix this on a permanent basis, it's not just going to affect high-income, high-tax states, ... it's going to engulf middle-class taxpayers throughout the country."

Many Americans have already felt the sting of the AMT as it has spread into the middle class:

•Margaret Rauh, a tax preparer by profession, likes to figure out her taxes a year in advance – to sort of imagine what she, her husband, and three young children might do with her tax refund. But this year, when she looked ahead, she found herself sitting with her mouth agape: The money she would ordinarily use for a vacation or to buy a piece of furniture will not be there. Instead, her family's annual income of $75,000 would be subject to the AMT. Unless something happens, she says, "something will get cut from the family's budget."

•With one child in college and another about to start, Joel Campbell, a middle-income sales director in Virginia's Loudoun County, has already tightened his belt. He says his property taxes are rising at double-digit rates annually – something he can no longer deduct from his income taxes now that he's subject to the AMT. Paying any additional tax to Uncle Sam will force some austerity measures.

"If something's not done, he'll end up paying $1,000 more in [federal] taxes next year," says Art Auerbach of Goodman and Co. in McLean, Va., Mr. Campbell's accountant.

Four million hit by AMT this year

An estimated 4 million Americans will be subject to the higher AMT this year. The number would have been 11 million, but Congress approved a temporary patch last year. Unless lawmakers apply another patch or pass a comprehensive reform, that number will jump to as many as 23 million people for the 2007 tax year.

"They're suffering from a problem that nobody really intended to incur and which nobody has gotten around to fixing," says Alan Viard, a scholar at the American Enterprise Institute in Washington.

Think of the AMT is a kind of shadow tax system. It was enacted in 1969 as a way to ensure that the richest Americans, if they used legal loopholes to avoid taxes, would end up paying at least something.

Two calculations of the tax bite

This is how it works: Households with annual income above a certain threshold – set last year at $65,000 – must calculate their tax liability two ways. First, they calculate their tax liability using the regular tax code, which allows for deductions for mortgage interest, state and local taxes, and other items. Then, they must recalculate it under the AMT, which does not allow for most of those write-offs. The taxpayer shells out to the IRS whichever number is highest.

The problem is that the AMT threshold was never indexed to inflation. As a result, more middle-income Americans like Ms. Rauh are getting snagged by it. For many, that means their mortgage-interest deduction, which might have saved them thousands of dollars in taxes in the past, suddenly no longer counts.

"It surprises people. It comes out of left field, and a lot of people who never paid it don't know it's there," says Dennis Jacobe, Washington-based chief economist at the Gallup Organization. "Generally speaking," he adds, "people view the tax system as relatively fair, depending on where you sit in the income spectrum."

Representative Rangel's committee has held two hearings on the AMT already and expects to hold more this spring. His goal is to have a bill ready for a vote no later than June, according to his staff.

Some analysts expect that the best Congress can do this year is another patch, because the long-term solutions proposed by Democrats and Republicans remain far apart.

"At this moment I'm not sure there's a solution that would work for both of them," says Mr. Viard. "The Democrats are not willing to consider any base-broadening [that would do away exemptions], and the Republicans are not willing to consider any marginal tax increases. I don't really see any common ground there … [Read More (http://www.csmonitor.com/2007/0413/p01s03-usec.html)]

___Good Luck

___Wayne

Haven't officially hit the Turbo Tax "submit" button yet, but it looks like we will get the full $2100 credit for the Bondmobile ! After reading some of the previous (and other blogsites) I was really worried there for awhile. Whew!

Bob

Here's a few more facts to consider when trying to understand the AMT.

It was originally set at 25%, but reduced to a tiered 20-21% under Reagan, but increased to 26 or 28%, by Clinton.

Bush tax cuts have reduced most middle income people's tax liability to the point that the AMT comes into effect. Elimimate the tax cuts could allow many to take the tax credit but also pay more taxes overall.

If you lost full credit because you have children you could receive the full tax credit if the Bush child tax credits were repealed, but again pay more tax overall.

I'm no fan of Bush, or taxes, but it could be said that Bush tax cuts undercut the hybrid tax break, and everyone paid less, not just the hybrid buyers.

Democrat solutions include eliminating the AMT if they can raise the tax on all income above the current 25% to 39.6%.:eek:

At this point many hybrids are holding their own just fine without incentives, buy them for the built in benefits that pay for themselves and let's eliminate the subsidies.

Wayne,

Thanks for the information.


Hi Ed:

___There is still hope as those AMT $’s taken away are available to offset future AMT incursions as I understand the law today? Fortunately, this should be getting fixed … There was a great story in the Christian Science Monitor today that you may be interested in? We got smoked by the darn thing this year hard and I hope it disappears forever! It is one thing to earn millions per year and shelter everything to avoid it and it is altogether something else to earn 10% of that get murdered because our pay is on a W2 :(

A dreaded tax is slated to be fixed.

Lawmakers have vowed to revise the alternative minimum tax, which is imposing higher taxes on 4 million middle-class households this year. (http://www.csmonitor.com/2007/0413/p01s03-usec.html)

http://www.cleanmpg.com/photos/data/2/AMT_-_Where_your_Tax_dollars_go.gifAlexandra Marks and Ron Scherer - The Christian Science Monitor - April 13, 2007

SOURCE: THE HERITAGE FOUNDATION/RICH CLABAUGH - STAFF

NEW YORK - If you think your taxes are bad this year, wait until next April 15.
Unless Congress acts relatively soon, millions more Americans will find that the tax refund they expected will disappear – swallowed up by the alternative minimum tax (AMT), a levy originally designed to make sure that millionaires pay up.

Indeed, as Americans root through receipt-filled shoeboxes to complete this year's 1040, fixing the AMT has become a priority in Congress. Lawmakers on both sides of the aisle agree something must be done, and they agree a fix will mean billions of dollars in lost revenue for US coffers. But there's little agreement on how to pay for the repair: Many Democrats envision a tax increase for the wealthy, while many Republicans favor the elimination of some broad-based deductions, like local tax exemptions. The two sides don't even concur on how much revenue will be lost: Some put the figure at as little as $250 billion over the next decade, others as high as $1 trillion.

Given the lack of consensus, the first question lawmakers will be haggling over is whether to do a one-year "patch" of the tax to give middle-income homeowners a break or to try for a long-term overhaul.

Lawmakers feel sense of urgency

Either way, congressional leaders say something will be done to fix the problem.

"It's very important. It's my No. 1 priority," says Rep. Charles Rangel (D) of New York, chairman of the House Ways and Means Committee.

The committee's ranking Republican, Rep. Thomas Reynolds of New York, agrees the AMT must be tackled this session. "If we don't do something to fix this on a permanent basis, it's not just going to affect high-income, high-tax states, ... it's going to engulf middle-class taxpayers throughout the country."

Many Americans have already felt the sting of the AMT as it has spread into the middle class:

•Margaret Rauh, a tax preparer by profession, likes to figure out her taxes a year in advance – to sort of imagine what she, her husband, and three young children might do with her tax refund. But this year, when she looked ahead, she found herself sitting with her mouth agape: The money she would ordinarily use for a vacation or to buy a piece of furniture will not be there. Instead, her family's annual income of $75,000 would be subject to the AMT. Unless something happens, she says, "something will get cut from the family's budget."

•With one child in college and another about to start, Joel Campbell, a middle-income sales director in Virginia's Loudoun County, has already tightened his belt. He says his property taxes are rising at double-digit rates annually – something he can no longer deduct from his income taxes now that he's subject to the AMT. Paying any additional tax to Uncle Sam will force some austerity measures.

"If something's not done, he'll end up paying $1,000 more in [federal] taxes next year," says Art Auerbach of Goodman and Co. in McLean, Va., Mr. Campbell's accountant.

Four million hit by AMT this year

An estimated 4 million Americans will be subject to the higher AMT this year. The number would have been 11 million, but Congress approved a temporary patch last year. Unless lawmakers apply another patch or pass a comprehensive reform, that number will jump to as many as 23 million people for the 2007 tax year.

"They're suffering from a problem that nobody really intended to incur and which nobody has gotten around to fixing," says Alan Viard, a scholar at the American Enterprise Institute in Washington.

Think of the AMT is a kind of shadow tax system. It was enacted in 1969 as a way to ensure that the richest Americans, if they used legal loopholes to avoid taxes, would end up paying at least something.

Two calculations of the tax bite

This is how it works: Households with annual income above a certain threshold – set last year at $65,000 – must calculate their tax liability two ways. First, they calculate their tax liability using the regular tax code, which allows for deductions for mortgage interest, state and local taxes, and other items. Then, they must recalculate it under the AMT, which does not allow for most of those write-offs. The taxpayer shells out to the IRS whichever number is highest.

The problem is that the AMT threshold was never indexed to inflation. As a result, more middle-income Americans like Ms. Rauh are getting snagged by it. For many, that means their mortgage-interest deduction, which might have saved them thousands of dollars in taxes in the past, suddenly no longer counts.

"It surprises people. It comes out of left field, and a lot of people who never paid it don't know it's there," says Dennis Jacobe, Washington-based chief economist at the Gallup Organization. "Generally speaking," he adds, "people view the tax system as relatively fair, depending on where you sit in the income spectrum."

Representative Rangel's committee has held two hearings on the AMT already and expects to hold more this spring. His goal is to have a bill ready for a vote no later than June, according to his staff.

Some analysts expect that the best Congress can do this year is another patch, because the long-term solutions proposed by Democrats and Republicans remain far apart.

"At this moment I'm not sure there's a solution that would work for both of them," says Mr. Viard. "The Democrats are not willing to consider any base-broadening [that would do away exemptions], and the Republicans are not willing to consider any marginal tax increases. I don't really see any common ground there … [Read More (http://www.csmonitor.com/2007/0413/p01s03-usec.html)]

___Good Luck

___Wayne

US Congressman John Shimkus had a Town Hall phone conference last night. I asked him the following question.

"Congressman, I am a proponent of hybrid and alternative fuel vehicles. Locally here in Southern Illinois, interest has diminished along with the value of the federal tax credit for hybrids. Does Congress have any plans to renew incentives for hybrid cars?"

He replied that he has heard that the Democrats are addressing a plan for that issue as well as others. He said that since it is a tax/$$$$ issue, it was out of the hands of the Energy committee.

msirach-- Thanks for the update. We never received one cent of our supposed rebate.:(


US Congressman John Shimkus had a Town Hall phone conference last night. I asked him the following question.

"Congressman, I am a proponent of hybrid and alternative fuel vehicles. Locally here in Southern Illinois, interest has diminished along with the value of the federal tax credit for hybrids. Does Congress have any plans to renew incentives for hybrid cars?"

He replied that he has heard that the Democrats are addressing a plan for that issue as well as others. He said that since it is a tax/$$$$ issue, it was out of the hands of the Energy committee.

Locally here in Southern Illinois, interest has diminished along with the value of the federal tax credit for hybrids.

Is that true?, or are you caught spinning the spin Spinella has put on a market cycle that in reality includes considerable growth in hybrid sales? Many think now is a perfect time to buy "because" the rebate only inflated sticker price, and the profit to dealers.

There's still lots of tax credit available.

From my local paper today.
http://www.dailycamera.com/news/2007/jul/16/the-battle-against-climate-fatigue/

In Boulder the Civic is 2nd rate, a Prius makes the right(eous) statement.;)

I look at the tax credit as an added benefit not as a reason to buy or not buy a hybrid. Not that I even own one right now.

It's nice if money is not a concern.

I look at the tax credit as an added benefit not as a reason to buy or not buy a hybrid. Not that I even own one right now.