 Tax
breaks on hybrid cars
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 Dear
Tax Talk,
I know we get a tax break if we buy a Toyota Prius or some other
hybrid car. If we buy two of them this year, can we get a double
break? If not, will the break next year be smaller? -- John
 Dear
John,
Thanks to the new energy bill that was signed
by the president on Aug. 8, you'll be getting a bigger tax credit
next year than you would by buying the car this year. Of course,
it takes a lot of energy to skim through the 1,724
page bill to find these answers. But according to the Department
of Energy Web site:
"Starting in 2006, hybrid-car buyers and advanced
lean-burn technology vehicles will be eligible for tax credits
ranging from $1,700-$3,000; this credit is tied with two components:
hybrids that save the most fuel compared with 2002 models, and
the vehicle's estimated lifetime fuel savings."
The credit is actually a percentage of the additional
cost of the car being outfitted with hybrid technology. Just as
businesses do, individuals can claim the credit for each vehicle
that they purchase. The credit reduces your tax bill, dollar for
dollar.
But beware that it will not reduce your regular tax
bill below your alternative minimum tax, or AMT bill, so too many
credits from too many cars may not be that helpful in reducing your
overall tax bill. The new law repeals the prior law's tax deduction.
The prior law's tax deduction, which is still in effect until the
end of this year, is $2,000 in 2005 but it would have been reduced
to $500 starting in 2006. Under prior law, those in the top tax
bracket would have realized a maximum savings of $700.
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