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Fed a deduction, some states are credits.

The federal is a deduction (as in, it reduces your INCOME by $1500, or, if you don't get your car until 2005, only $1000,) some state ones are true credits. In my state, Oregon, it's a credit of $1500.

That means that when calculating my taxes next year, for my federal, I'll take $1500 off my INCOME, which reduces my tax burden by somewhere around $300, depending on my tax bracket. So if I end up (based on last year,) getting a tax refund of about $300, then the Prius will double my refund to $600, NOT increase it to $1800.)

When calculating my state taxes, I'll calculate them as normal, without the Prius doing anything. Then, I'll take that little "Tax Liability" number, and reduce IT by $1500. I expect that my tax liability will be more than $1500, but that I will have paid more than that during the year anyway. So I expect (based on last year,) to get a refund of about $50. THEN I add in the $1500 CREDIT for the Prius, and the state of Oregon will owe me about $1550.

So, in the end, I expect the Prius to save me about $1800 in income taxes this year.
 
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