Just doing my taxes and did not realize that IF you get rid of your hybrid before 36 months, you HAVE to give back a portion of your deduction!
Is this what this says? From IRS site. Am I missing something? Sorry if this was already discussed!
From: http://www.irs.gov/publications/p535/ch12.html#d0e10610

Sales or other dispositions. If you sell or otherwise dispose of the vehicle within 3 years after the date you placed it in service and know or have reason to know that it will be changed in any of the ways described above, you are subject to the recapture rules. In other dispositions (including a disposition by reason of an accident or other casualty), the recapture rules do not apply.

If the vehicle was subject to depreciation, the deduction (minus any recapture) is considered depreciation when figuring the part of any gain from the disposition that is ordinary income. See Publication 544 for more information on dispositions of depreciable property.


Recapture amount. Figure your recapture amount by multiplying the deduction by the following percentage.

• 100% if the recapture date is within the first full year after the date the vehicle was placed in service.
  
• 66⅔% if the recapture date is within the second full year after the date the vehicle was placed in service.
  
• 33⅓% if the recapture date is within the third full year after the date the vehicle was placed in service.
  

 

On about the fourth read, is it saying that if you sell it knowing that someone may modify the engine where it dont do what it did, then you have to pay back. Danged IRS and lawyer talk...a bunch of double talk!

 

That's how I read it. The big AND in there says that you have to sell it AND know that it will cease to qualify. But hey, I'm going to H&R block tomorrow so they can do my taxes and sell my personal information for profit so what do I know

 

How I am to know what someone else will do with my trade-in?

My accountant, dealer and the IRS cannot answer what I should do about the 2004 deduction that I took, so, where to now?

And no one can answer my questions about the credit for 2006 either. No one is sure how it works and what cars are eligible and for how much. Nice to know that this is an easily understood incentive for people who might be on the line and for those of us who already have our minds made up.

 

'06 changes from a deduction (taken against your gross income) to a credit (taken against taxes owed). At the moment, the IRS hasn't determined what the credit will be for the HCH, HAH, or just about any other hybrid out there, that's why you're not finding info on that.

 

Actually the IRS KNOWS what the taxes will be, its just no one has actually sat down and figured them out. I actually did though. This is what I came up with:

Curb weight is 2,875 lbs.
28.8 mpg is the class’ fuel economy.
$ 1,717.681 is the lifetime fuel savings
Percentage is 170 % better than fuel economy of class

$ 800 + 250 = $1,050 Credit for 2006 calendar year

How do I get this and why did I write a bunch of numbers ???? Well if you read the Energy Act of 2005, it is where it spells out that the deduction will fade out, and the credit will take its place. And then, it starts with this complicated method of calculating the credit. But thats what I got after an hour of reading the ACTUAL Energy Bill and figuring the tables. Now, I could have read it wrong, and missed a number here or there, because it was **** confusing, but I'm almost sure I got it right. If someone wants to back up my numbers, I would appreciate it. Also, the number is low yes, but you have to remember that a deduction lowers your gross income, a credit is a dollar for dollar credit by the gov't of the taxes you paid. So, a credit of 1,025 means you get to put an extra 1,025 in the taxes paid box of your 1040. It actually works out better the more money you make. For someone like me, a student, it doesn't mean much either way....

 

mexiken,

I'm impressed that you took the time to read the any legislation coming out of Washington. I think the last law that I read was the Bill of Rights in high school....I know I'm really civic minded.

For my own sake I hope your figure is wrong, as it is half of what I have read at most other locations (a tax credit of $2100 for 2006 HCH). To double check the $2100 I googled "2006 hybrid tax credit" and on the other hits was the DoE's website dealing with fuel economy (http://www.fueleconomy.gov/feg/tax_hybrid_new.shtml) which used the $2100 figure.
Patrick

 

I think you're fretting too much. The IRS publication was quoted as saying -
"If you sell or otherwise dispose of the vehicle within 3 years after the date you placed it in service and know or have reason to know that it will be changed"

When you sell the car, unless the buyer tells you he's going to change it, you don't know. If he's buying it for ordinary personal use then you also have no reason to know that he intends to change it. End of story. If you want to really be picky about it, ask the buyer what his intentions are. Tell him that it'll cost you money if he makes a change, so you want him to give you a letter saying that as of the time he's buying it he has no intention of changing it. Even if he changes his mind five minutes after driving away with the car, you have no reason to know that it will be changed.

 

That is pretty much what I figured but boy do they make life a little confusing/challenging. No one wants to invite an audit and you never know what they consider an invitation, 2 Hybrids in 2 years for a single person household could catch their attention.

I just find it frusterating that no one can seem to answer questions about it.

 

Since people might be checking out this thread while doing their taxes, I thought I'd tack on the general link to the IRS stuff on the clean-fuel deduction, which is:

http://www.irs.gov/newsroom/article/...104549,00.html

It lists the qualifying vehicles and has links to press releases on the issue with car-specific information. It also specifies the most important thing I needed to know to do my taxes now that I bought a hybrid car: to get the clean-fuel deduction (that's what it's called) you need to file a 1040, not a 1040A or anything else.

Yes, the deduction is subject to recapture if the car that you put in service is going to go out of service. And yes, the deduction expired Dec. 31, 2005- but that's a good thing. It was replaced by a credit, and credits are much better than deductions. So for all you lucky ducks out there who put new hybrids 'in service' after Dec. 31, it means more money off of your taxes. But you can all worry about that next year.

Smiles!