[Big Sexz]

Good afternoon everyone, I am looking for information on the tax credit differences for buying now or 1/1/06. I'm not close to the AMT so that will not matter. As I understand it buying a new Prius now will result in a credit $2000. Is this information correct? Is it a 1 time credit? I have also read about possible new legislation that will impact purchases for 06 and was hoping someone would have the skinny on it.

Yesterday I filled up my Z and it was $48.85. I cant take this any longer, it's just not worth it to me. Any help will be greatly appreciated.

Thanks,
Jeff

 

[ratell]

currently not a credit

I don't know the whole skinny, but my understanding is that currently there is a federal tax deduction (not a credit) of $2000. In 06 there will be a tax credit of about $2000, but there are limitations on how many.

A tax credit is much better because it's money off of the amount of tax you owe. A deduction lowers what the government considers your taxable income.

In addition, depending on your state there might be a tax break on your state taxes.

Rob

 

[DanMan32]

Example:

You make 50,000, you are in the 20% bracket.

Today, you take delivery on a Prius.
you made 50,000-2000 deduction = 48,000 taxable at 20%= 9,600 in taxes you owe

In 2006:
You make 50,000 totally taxable at 20%= 10,000 - 2000 credit = 8,000 tax you owe.
For the Prius though, the credit is closer to 2,750.

 

[fshagan]

Hybridcars.com at http://www.hybridcars.com/tax-deductions.html has the estimate from the American Council for an Energy Efficient Economy that the Prius will qualify for a $3,150 tax CREDIT if purchased in 2006. The credit reduces the total tax you pay, so if you pay more than $3,150 in Federal Income Tax, you can realize the full effect of the credit. I am not sure if the credit can be used to get back more money than you have paid in (some credits can, and some can't). And I THINK you can take the tax CREDIT even if you don't itemize your deductions.

The current tax deduction is $2,000, which is used to reduce your income and therefore the amount of taxes you owe. If you are in the highest bracket of 33%, its worth about $600 in tax savings. If you are in the lower bracket of 15%, then its worth about $300. You usually have to be able to itemize your deductions to take these; I'm not sure if that's the case with this one.

If I can, I'll wait until after January to replace my 1998 Toyota Sienna with a Prius. I may not be able to wait though ...

 

[anj48]

My understanding is that the credit will only be available for the first 60,000 vehicles per manufacturer. With Toyota expecting to sell over 100,000 Prius this year and exceed this next year and adding hybrid versions of the Highlander and Camry the credit will only be available for the first few months of 2006. Considering the current $2000 deduction, the 2006 price hike, and how many gas $$ you will save in the meantime – I would think about buying a 2005 now.

 

[fshagan]

What is the anticipated price hike with the 2006 models?

Unless the price hike is more than $2500, it makes sense to wait until the new year. Of course, the thing to keep in mind is that you have to wait another year and a half to actually get the $3000+ dollars ... after you file your 2006 taxes in 2007. So the "time value" of money has to weigh into that equation.

 

[GreyMud]

What is the anticipated price hike with the 2006 models?

Unless the price hike is more than $2500, it makes sense to wait until the new year. Of course, the thing to keep in mind is that you have to wait another year and a half to actually get the $3000+ dollars ... after you file your 2006 taxes in 2007. So the "time value" of money has to weigh into that equation.

Only if you let Uncle Sam hold your money for you. My HR people hate me, as I recalculate my taxes quarterly and change my witholdings so I get the interest on my money rather than the IRS. I have them withholding an extra $100/week towards the end of the year.

 

[anj48]

Thinking this through a little more

Thinking this through a little more … I have to wonder about the logistics of actually applying for and receiving the 2006 tax credit. It will only apply to around 1/3 to 1/2 of the eligible Toyotas sold in 2006 due to the 60,000 vehicle limit. So who gets the credit and who does not? Will this be the first 60,000 eligible vehicles sold? The first 60,000 to apply to the IRS? The first 60,000 to file their 2006 tax forms? Probably no one knows because this has not yet been worked out.

My guess is that the IRS will handle this and Toyota and the dealers will play a passive role like providing forms and proof of purchase. The critical question here is will you know at the time purchase whether you will get the credit or not? Considering the difficulties of the logistics I think 2006 Prius purchasers will pay their taxes as usual and then find out sometime in mid 2007 about the credit and receive a rebate check if they are to get it.

So go with what you know and get a 2005 now.

 

[deh2k]

I believe that the tax credit applies through the calendar quarter following the time a manufacturer sells their 60,000th hybrid. That means that worst case the credit will apply for the first 6 months of 2006.

 

[fshagan]

The only way it doesn't work out better to wait is if the price increase for the 2006 models is more than $2500 (the difference between the tax credit and the tax deduction).

Even calculating the mileage at 1760 per month for 4 months, with my current 22mpg, I'll "only" pay about $540 more in gas than I will with a 50mpg car .... at $3 per gallon. So the "delta" is down to considering if the 2006 will be more than $2000 than today's Prius.

My other car is paid for, so I'm likely to have about $2000 in car payments between now and the end of the year if I buy now. So waiting is probably the right thing to do financially ... unless my other car dies, and I have to buy a new one anyway.