"If the credit amount is not the entire amount you were eligible for, you were either limited by the tax that you owe or other credits you have taken. Information you enter later for other credits and deductions may also lower this credit amount." Is this fair? I will not get the full tax credit I'm entitled too? I do not owe ANY taxes so I should get my full tax credit.
I'm not a tax professional, but let me see if I can help out here. It's a tax credit. It's like a money-off coupon at the store. The ones with the fine print that tell you that you can't actually get money over and above the cost of the item. So, if the credit is for, say, $500, and your tax burden for 2007 was $800, then it reduces your taxes to $300. However, if your tax burden was $400, then you don't get $100 back, you just have your taxes reduced down to $0. And, this credit goes into effect after all your other credits already reduce your tax burden, so if they already ate away all your taxes, then this credit won't make an impact. I could be completely wrong here, but I think this is how it works (haven't done our taxes yet this year).
The credit is not refundable, i.e., it only offsets your income tax. AND, if you make enough money, the Alternative Minimum Tax (AMT) limits the credit. See Form 8910 and Form 6251 for those calculations. So, you take the credit the salesman told you about and limit it to your income tax liability for the year (Line 57 on the 1040 without this credit) less your tentative minimum tax (Form 6251 line 33). The salesmen seem to overlook the limitations...
Is it fair? That depends on what you consider fair. The government has offered to reduce the income taxes you pay if you meet certain conditions and you buy a hybrid. They didn't have to, but they decided to. They did not offer to pay you to buy a hybrid. You chose to buy a hybrid. You have no income taxes. The only thing unfair is that you failed to understand the law and expected the government to pay you to buy a hybrid. If you don't like it, contact your congressman and get him to change the law. Will you get the full tax credit that you're entitled to receive? Yes. If you fill out the forms correctly, and file properly, you will most likely get the full tax credit that you're entitled to receive. Of course, if you don't owe any taxes before taking the credit, then according to the current laws you are entitled to a full $0.00 of tax credit, but you will most certainly receive this $0.00 credit.
Rae Vynn is Correct Rae's simple answer is right on the money (or lack thereof). The tax credit is exactly that -- a credit to be applied to taxes owed Uncle Sam. It is easy to get confused by the many different ways your taxes are affected. Some items lower your taxable income, some lower your actual taxes due, and others can count as actual money that can return to you. A more common misconception is whether something is tax deductible or not. People are quick to tell you something is tax deductible; however, most things in that category only count if you can itemize and beat the standard deduction. Even then, the type of deduction for itemizing isn't always dollar for dollar. Many items you can itemize have a minimum amount before you can count them and you only get credit for a percentage of what you want to deduct. I bought my Prius knowing the tax benefit was gone and later realized I wouldn't have gotten it anyway because of the same situation you are in.
One of the few tax credits that will give you back more than you paid is the Earned Income Credit. It's essentially a subsidy for low income wage earners, even though it's called a credit. The Prius tax credit can also be limited by making too much money and getting caught by the AMT calculations. You have to pay very fine attention to tax law if you want to predict how and when credits will work. Tom
All of the replies are correct. I'm glad this is the last year these questions have to be answered here.
