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IRS Rules for Tax Credit

  #1  
Old 03-17-2007, 05:25 PM
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Default IRS Rules for Tax Credit

I just got back from my accountant's office. I bought a 2006 Civic Hybrid and thought I was getting a 2100 tax credit. I was told by my accountant that the tax credit is tied to your income and that we would only be getting back 250.00 because we make too much money. Has anyone else heard of the tax credit being tied to income?
 
  #2  
Old 03-18-2007, 12:23 AM
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Yes I just found this out as well. Considering how they advertised the credit for Hybrids seems like consumers were dooped. It shouldn't matter how much money a person makes. Either they want the public to buy Hybrids or not, that is the issue. It is clear to me they don't. Either that or Hybrids really aren't good for the environment.
 
  #3  
Old 03-19-2007, 09:18 PM
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Default Re: IRS Rules for Tax Credit

Yup-I got hit for it too.

It has more to do with the AMT (Alternative Minimum Tax) than just straight income...

I got a $1295 tax credit instead of the $2,100 for our Civic. Because I also got a child care credit, it pushed down our tax credit overall.

When the credits push the taxes owed below the floor for the AMT, the credit for the Hybrid stops.

So suppose you currently owe $16,000 Federal Tax. The AMT floor is $15,000.

Your credit is supposed to be $2,100 for your Civic, so you would expect that your taxes owed would be $13,900 (16,000-2,100=13,900). Instead, because the AMT would be $15,000, you only get $1,000 credit and have a $15,000 tax burden.

In either event, we like that the Civic is getting in the high 30's in MPG, is getting my wife HOV privileges and shortening her commute by 40 minutes a day, and is offsetting both the gas-guzzling and emissions of the SUV I drive 7 miles roundtrip for work each day. We like that it keeps its value and that we have a warranty for 8 years.

Michael
 
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Old 03-21-2007, 04:59 AM
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Default Re: IRS Rules for Tax Credit

Originally Posted by mickster View Post

When the credits push the taxes owed below the floor for the AMT, the credit for the Hybrid stops.
That's exactly it.

One can't pay in federal income taxes, less than their AMT amount. So, all the tax credits, when added together, can't push you below your AMT amount.

So, in addition to filling out the Hybrid tax credit form, 8910, you have to now actually fill out the AMT form (6251?) even if you wouldn't have to otherwise, just to calculate your tax credit limit.
 
  #5  
Old 03-22-2007, 08:03 AM
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Default Re: IRS Rules for Tax Credit

Hi

I have never heard that the Gov will shave your tax credit if you make more or less than the next guy. That cant make sense can it?

We bought in april so we should get the full tax credit. We too may have to take the Amt however. We shall see.
 
  #6  
Old 03-22-2007, 08:10 AM
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Default Re: IRS Rules for Tax Credit

Originally Posted by tomdavie View Post
I have never heard that the Gov will shave your tax credit if you make more or less than the next guy. That cant make sense can it?

We bought in april so we should get the full tax credit. We too may have to take the Amt however. We shall see.
It has nothing with what others make. It is just by law, there is a MINIMUM tax, and you CAN'T pay one penny less than that. With these large Hybrid Tax Credits, a lot of people are finding that the credit will drop them to below the MINIMUM, and that isn't allowed. So, the best they can do, is pay the minimum, and forfeit any additional amounts the credit would have, otherwise, brought them.

Which month you purchased as nothing to due with the MINIMUM tax, but instead, is the tax credit phase out. If one buys a Toyota, it can become a double whammy.
 
  #7  
Old 03-22-2007, 10:12 AM
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Default Re: IRS Rules for Tax Credit

Unfortunately, the AMT has become a middle class tax. It starts kicking in at around $75,000 of income. Originally it was designed to tax the wealthy. Because of recent tax cuts, it now effectively raises the tax burden of the middle class.
It's quite ironic. If you can afford a hybrid, chances are that you will have a reduction of the credit.
 
  #8  
Old 03-23-2007, 09:30 AM
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Default Re: IRS Rules for Tax Credit

I just did my taxes yesterday. My $3150 for the Prius was cut to a number much closer to $2700 because the full credit would have pushed me below the AMT limit.

Actually the AMT was _not_ designed to tax the wealthy... it was designed to tax the _extremely_ wealthy. It was designed to target 155 individuals who were so rich and had created so many tax shelters that it was discovered that they paid no taxes or nearly no taxes at all!

The problem is that it wasn't designed to adjust for inflation. Over time it's become a tax for the wealthy and ultimately a tax for the middle class. Since the AMT has the effect of limiting your tax deductions and credits to insure that everyone pays some minimum tax threshold (based on income), the more you're getting stung with other taxes (e.g. you live in a high tax state or you have a lot of dependents (or both)) then the more likely you are to get stuck paying AMT.

Because so many people are currently stiffed with the AMT, the tax has -- not surprisingly -- become a noticeable amount of tax revenue for the federal government. If they were to refresh the law so that it went back to only affecting the _extremely_ wealthy then it would make a noticeable dent in the federal revenue and they'd have to find some other way to make up for it.
 
  #9  
Old 03-23-2007, 01:57 PM
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Default Re: IRS Rules for Tax Credit

Originally Posted by tcampb01 View Post
I just did my taxes yesterday. My $3150 for the Prius was cut to a number much closer to $2700 because the full credit would have pushed me below the AMT limit.

Actually the AMT was _not_ designed to tax the wealthy... it was designed to tax the _extremely_ wealthy. It was designed to target 155 individuals who were so rich and had created so many tax shelters that it was discovered that they paid no taxes or nearly no taxes at all!

The problem is that it wasn't designed to adjust for inflation. Over time it's become a tax for the wealthy and ultimately a tax for the middle class. Since the AMT has the effect of limiting your tax deductions and credits to insure that everyone pays some minimum tax threshold (based on income), the more you're getting stung with other taxes (e.g. you live in a high tax state or you have a lot of dependents (or both)) then the more likely you are to get stuck paying AMT.

Because so many people are currently stiffed with the AMT, the tax has -- not surprisingly -- become a noticeable amount of tax revenue for the federal government. If they were to refresh the law so that it went back to only affecting the _extremely_ wealthy then it would make a noticeable dent in the federal revenue and they'd have to find some other way to make up for it.
Actually the AMT doesn't effect the extremely wealthy at all.

Around 35% of millionaires pay the AMT, mostly those right at the million level, because over time the deductions and shelters that allowed some to not pay any taxes have been reduced or eliminated. Most millionaires pay in the 35% bracket on earnings in the millions, already higher than the 28% AMT.

Far from fixing the AMT, Clinton raised the AMT from 20%($100k-$175K),21%($175K+) to 26% and 28% respectively.
 

Last edited by worthywads; 03-23-2007 at 02:00 PM.
  #10  
Old 03-23-2007, 04:07 PM
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Default Re: IRS Rules for Tax Credit

Originally Posted by tomdavie View Post
Hi

I have never heard that the Gov will shave your tax credit if you make more or less than the next guy. That cant make sense can it?

We bought in april so we should get the full tax credit. We too may have to take the Amt however. We shall see.
Tom it doesn't matter what month you bought you car-as long as it was in 2006 and not a Toyota when the credit was reduced, then you will get the full credit until it hits the AMT limit. If you are married and own a home, I'll guarantee you get less than the full credit.
 

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