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Considering a Hybrid?
If you are considering purchasing a new car, you may want to consider a hybrid as there are significant tax advantages. If you are considering a Toyota or Lexus hybrid, you may want to act quickly and make the purchase by March 31, 2007 to maximize you tax credit.
As an example, if you were to purchase a 2007 Toyota Highlander prior to April 1, 2007 your credit would be $1,300 ($1,575 for a Prius) , but if you make the purchase between April 1, 2007 and September 30, 2007 your credit would be reduced by 50% to $650 ($787 for a Prius).
A credit is more valuable than a deduction, as a credit reduces tax liability dollar for dollar while a deduction which reduces tax based upon your marginal tax rate.
To be eligible for the credit, The Energy Policy Act of 2005 states that the following basic rules must be met:
- The vehicle must be placed in service after 12/31/05 and purchased on or before 12/31/10.
- The original use of the vehicle must begin with the taxpayer claiming the credit. The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.
Additionally if you are subject to Alternative Minimum Tax, the credit will not reduce your alternative minimum tax. The credit will reduce your regular income tax liability, but not below zero.
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