Tuesday, December 19, 2006


Beanna Whitlock, Executive Director of the National Society of Tax Professionals, brings up an interesting item in an article in the December issue of the Society’s newsletter THE FEDERAL TAX ALERT, which arrived this week-end.

I was aware that the new energy credit for the purchase of a qualified hybrid vehicle cannot be applied against the dreaded Alternative Minimum Tax (AMT), but not, as Beanna points out, that the credit is only allowable to the extent the “regular” income tax exceeds the AMT! And if I did not know this, 99.99% of the taxpayers who purchased a hybrid vehicle expecting to get a large credit did not know it.

If you purchase a hybrid car in 2006 that qualifies for a $3,150 tax credit, and your net federal income tax liability calculated in the “normal” way, after deducting most other credits, is only $200 more than your tax liability calculated under AMT, your Alternative Motor Vehicle Credit is only $200! You have lost $2,950 in anticipated tax savings!

Plus, as the instructions for Form 8910, the form used to calculate the Alternative Motor Vehicle Credit, state, “If you cannot use part of the personal portion of the credit because of the tax liability limit, the unused credit is lost. The unused personal portion of the credit cannot be carried back or forward to other tax years.” So the $2,950 is lost forever.

Go to the Form 8910 itself and
read through lines 13 to 18 (line 12 is the maximum amount of credit allowed) for yourself.

The dreaded AMT hits taxpayers in states with high income, sales and real estate taxes, and where a high cost of living inflates salaries, especially hard. States like New Jersey and New York – where my clients live.

I echo what Beanna says in closing her article:

“My concern is that these taxpayers bought a hybrid expecting the tax credit. The credit can be substantial and therefore will in most cases create angry taxpayers when they find out that their $3,000 reason for buying the car was lost due to AMT, a term they do not understand. And now I have to tell them that there is no alternative deduction option or carryover available.

I am not looking forward to being the bearer of bad news when my taxpayers say, ‘Be sure to take my hybrid vehicle credit!’”

Oi vey!



Anonymous said...

I just did my taxes and found out my $2600 credit is completely wiped away because the $3000 credit for my kids puts me below the tentaive minimum tax. Everything behind this only said you couldn't take if you had to pay AMT. Nothing ever mentioned difference between normal tax and AMT is max amount. I am seriously mad right now.

Anonymous said...

I just did my tax too and found out that my $2600 credit is also wiped out. The overall energy tax credit really mis-lead the consumers into buying a hybrid vehicle into thinking that they are going to get the full credit amount allowed to them. This country is really mess up!