Time Running Short on Toyota Hybrid Tax Credit
by Collin Dunn, Corvallis, OR, USA on 01.17.06
If you've ever thought about picking up a Toyota hybrid (either a Prius or Highlander, with Camry coming soon), we suggest you make haste and do it soon. According to The Energy Policy Act of 2005 (EPACT), signed into law last August and effective January 1, the tax credit buyers receive for purchasing a hybrid car begins to phase out after an automaker sells 60,000 of the eligible vehicles between the beginning of 2006 and the end of 2010. The one-year credit “phase out” begins after the next complete calendar quarter; 50% of the credit will be available for that manufacturer’s hybrids in the first two quarters of the phaseout period and 25% in the final two quarters. According to the Detroit News, after selling 146,533 hybrids last year, Toyota is on track to hit the 60,000 mark in the first half of 2006; the sun is definitely setting on the automaker's ability to offer full tax credits.
That means that the deductions for both Prius (currently US $3,150) and Highlander ($1,950 for front wheel drive and $2,200 for four wheel drive) will likely be cut in half starting later this year, and will continue to drop as more are sold. This could be good news for competing, slower-selling hybrid manufacturers like Honda and Ford, who are likely to maintain the full tax-credit through 2006. This gives us cause to pause and wonder: will a reduced tax credit cause consumers to go with their second choice when it comes to a hybrid car? Or are hybrid buyers willing to eat the loss of $1,000 or $1,500 in tax credits to stick with a car they want? Perhaps we'll all know in about six months. via ::Jalopnik.
Beware if you think a hybrid tax credit is what it says it is. The problem is this: the IRS will slash your tax credit for a hybrid based on a calculation they make you do of a hypothetical case where you would pay the Alternative Minimum Tax. Even if your income is no where near that which would require you to pay AMT, you still have to calculate it to determine your maximum allowable tax credit on the hybrid. We lost more than $2000 which we expected to get on our hybrid purchase. Big disappointment.
Intheknow, can you explain more about how and when this circumstance happened to you?
Was it when you were you doing your taxes that you were required to run this hypothetical scenario? I don't understand how a hypothetical situation would affect your actual credit. If you don't have to actually pay the AMT, why would your credit be taken away or reduced?