In an effort to reduce America’s dependence on foreign oil, reduce urban emissions and reduce greenhouse gases, the federal government offers vehicle buyers and owners a number of tax incentives to buy and operate natural gas vehicles and electric type vehicles. These include the following:
Federal Tax Incentives Associated With Chevrolet Volt
There will be a $7500 Federal tax credit available for the first 250,000 eligible Chevrolet Volt buyers. After that, the credit will be 50% of the original amount for the next two quarters, then 25% of the original amount for another two quarters before being phased out completely. For more information click here.
Federal Tax Incentives Associated With Civic Natural Gas
A tax credit is available for the cost of alternative fueling equipment placed into service after December 31, 2005 currently exists. Consumers who purchase qualified residential fueling equipment (Phill) may receive a tax credit of up to $1,000. For more information click here
First of all, DON’T CONFUSE ALTERNATIVE FUEL CREDITS WITH HYBRID CREDITS! They both are claimed on Form 8910, but hybrid vehicle credits phase out as the automaker puts more of them on American highways. However, our alternative fuel credits retain their full value no matter how many Civic GX’s or EPA certified conversions hit the road. Note that our alternative fuel credits will sunset in December 2010 but it is widely assumed Congress will extend them.
Alternative fuel vehicle credits are based on the year the dedicated alternative fuel vehicle system was “placed into service.” So if you are the first consumer of a new Civic GX from Honda then the credit is only available to you for the tax year in which you placed the vehicle into service. If you convert a vehicle to become a dedicated NGV using an EPA or CARB certified retrofit then you can take the credit in the year the conversion was performed. If the buyer is a tax-exempt entity (municipality, school district, church/foundataion, etc.) then the seller can take the credit.
Note that the federal credit varies by gross vehicle weight with steps from 4k/$8k/$20k/$32k (see attached PDF) but for our discussion let’s assume $4k as most of us on this chat board will be talking about vehicles under 8,500 lbs. Let’s review a couple of examples:
His total tax owed before payments and credits (Form 1040 line 44) is $20,000. His employer withheld $26,000 (line 65) so normally he would be expecting a $6,000 refund check. But this year he bought a new Civic GX so he also filed Form 8910 for the $4,000 tax credit. He also installed a Fuelmaker at his home so he filled out Form 8911 to get the $1,000 credit too. These flow to line 55 which shows $5,000 in “Other credits.”
Now, thank heavens the number in line 45 (Alternative Minimum Tax) was zero. Otherwise, the aforementioned Forms 8910 and 8911 would not have been filled out as he would not have qualified for the credits under the AMT rules. Why some folks get hit with AMT while others don’t is a question reserved for those skilled in the black art of tax accounting suffice it to say most that do get hit with this have either incomes over $250,000 or they have a lot of tax-advantaged income such as long-term capital gains, tax exempt bond interest, etc.
Here is how his tax burden would be calculated for our first example:
Line 44 = 20,000 (Tax owed)
Line 46 = 20,000 (no AMT for this lucky fellow)
Line 55 = 5,000 (alternative fuel vehicle and refueling credits)
Line 56 = 5,000
Line 57 = 15,000 (line 56 is less than line 46 so he is OK using all of the credit)
Line 63 = 15,000 (total tax, assuming no self employment or other taxes owed)
Line 65 = 26,000 (withheld by his employer)
Line 72 = 26,000 (let’s assume no children, earned income credits, etc.)
Line 76 = 11,000 (this is the amount of the IRS check sent to him)
His total tax owed before payments and credits (Form 1040 line 44) is $3,000. His employer withheld $2,000 (line 65) so normally he would be expecting to pay $1,000 with his return. But this year he bought a new Civic GX so he also filed Form 8910 for the $4,000 tax credit. This flows to line 55 which shows $4,000 in “Other credits.”
Now, as he is a lower-income taxpayer it is almost a given that the number in line 45 (Alternative Minimum Tax) was zero.
Here is how his tax burden would be calculated:
Line 44 = 3,000 (Tax owed)
Line 46 = 3,000 (no AMT)
Line 55 = 4,000 (alternative fuel vehicle credit)
Line 56 = 4,000
Line 57 = 0 (line 56 is more than line 46 so he cannot use all of the credit)
Line 63 = 0 (total tax, assuming no self employment or other taxes owed)
Line 65 = 2,000 (withheld by his employer)
Line 72 = 2,000 (let’s assume no children, earned income credits, etc.)
Line 76 = 2,000 (this is the amount of the IRS check sent to him)
So in his situation instead of writing a check to the IRS of $1,000 he now is getting back as a refund all of the $2,000 he paid in over the year. But since his total federal tax burden was only $3,000 vs. the $4,000 alternative fuel vehicle credit, he “left on the table” $1,000 that cannot be carried over to future years.