Rules have changed for car buyers' federal tax breaks

"What kind of tax break can I get on that?" may not be the first thing you ask about the hot-pink hybrid that catches your eye at the auto dealership. But it is worth asking.

While going green doesn't add up to all the green it once did, there are still tax incentives available — including some that are slated to phase out by summer.

And if you are doing your tax return for 2009, don't forget about sales-tax credits for new car purchases during the year. If you bought two cars, you can get two credits, said Mark Luscombe, CCH principal tax analyst.

If you bought last year or have been walking around the dealership thinking it's now time for a new set of wheels, it's good to know some rules:

Going green

You've likely heard about generous tax breaks for buying hybrid cars and trucks. But if your plans include a 2010 Toyota Prius, you won't be able to get a credit.

This month, the Internal Revenue Service rolled out its latest list of tax credits for 2010-model-year hybrid vehicles. No Toyota or Honda models are on it because those companies already sold all the vehicles they were allowed under the Alternative Motor Vehicle Credit.

The 2010 credit list includes hybrid models from BMW, Cadillac, Chevrolet, Ford, GMC, Mercury, Mercedes-Benz and Nissan.

But consumers who are shopping for a Ford hybrid need to buy soon. A phaseout of credits on the company's hybrids started in April 2009. Now the final steps are in place — 25 percent of the full credit for Ford or Mercury hybrids bought between Oct. 1, 2009, and March 31 of this year. If you're looking at a 2010 Fusion Hybrid, the current $850 credit will be gone by the end of March.

The hybrid tax credit is complex. The dollar amount can change based on fuel economy and weight of the model, as well as how many such vehicles the manufacturer has already sold.

The first 60,000 hybrids or lean-technology vehicles sold per manufacturer — on a clock that began ticking in 2006 — qualify for the full credit.

General Motors still isn't anywhere near the cap, so the full credit is allowed on GM vehicles.

A 2010 GMC Sierra Hybrid, for example, would qualify for a $2,200 tax credit. A 2010 Chevy Malibu Hybrid would qualify for a $1,550 credit. A 2010 Cadillac Escalade Hybrid would qualify for a $2,200 credit.

The hybrid tax credit does not come automatically.

You must claim it on your federal return.

If you bought a qualifying hybrid in 2009, you will want to file a Form 8910 (Alternative Motor Vehicle Credit) with your 2009 federal income-tax return. The credit is then listed on Line 53 of the 1040 for 2009 among other credits. Luscombe noted it's not one of those items with its own line on the return.

New-car purchase

Almost all 2009 new-car purchases get you a tax deduction.

To qualify, the new vehicle must have been bought — not leased — from Feb. 17, 2009, through Dec. 31, 2009.

The American Recovery and Reinvestment Act of 2009 allows taxpayers to deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price of new cars, light trucks, motor homes and motorcycles.

The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 and for other taxpayers with modified adjusted gross incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

But the special deduction is available even for taxpayers who do not itemize deductions.

If you itemize, Luscombe noted, you report that sales tax on Schedule A. If you do not itemize, you report the sales tax for new-car purchases on Schedule L.

Electric vehicles

The American Recovery and Reinvestment Act of 2009 modified and increased an earlier tax credit for electric vehicles.

The base amount remains $2,500, with an additional amount of $417 for each kilowatt hour of "traction battery capacity in excess of 4 kilowatt hours." The maximum is capped at $7,500 for a light-duty vehicle.

Under the rules, taxpayers may claim the full amount of the credit up to the end of the first calendar quarter in which the manufacturer records its 200,000th sale of a plug-in, electric-drive vehicle. Then the credit starts to go down each quarter.

For some taxpayers, it will be good news that the credit is allowed against the alternative minimum tax.

A tax credit is also available for plug-in electric drive conversion kits.