New Car Tax Credit 2011

To encourage car owners to purchase hybrid and alternative-fuel cars, the IRS offers a new car tax credit for selected models from various manufacturers.

You can claim the new car tax credit while preparing your tax return online using tax software such as, Turbotax Online. Their tax software will find tax credits for you with the click of the mouse. Some tax credits are created to encourage us to purchase more energy friendly vehicles.

The new car tax credit was made possible by the Energy Policy Act of 2005 and implemented by the IRS under the Alternative Motor Vehicle Credit. Starting from 2006, original car owners who purchased or rented out hybrid and alternative-fuel cars can earn a maximum tax credit of $7,500.

It’s important to understand that a tax credit is different from a tax deduction. Generally, a tax credit can be used to reduce or pay off the amount of tax payable. In the case where you are getting a tax refund, the tax credit will be added to the total amount. On the other hand, a tax deduction simply means that a certain amount is deducted from the total amount of taxable income.

Generally, there are four distinct categories of vehicles which are eligible for the federal tax credits. The categories are advanced lean-burn technology vehicles, fuel cell vehicles, hybrid vehicles, and alternative fuel motor vehicles and heavy hybrids. Before you apply for the tax credit, it’s essential to check and see if your vehicle qualifies. Under current laws, the credit amount begins to phase out once the sales of eligible vehicles reach 60,000 units for each manufacturer. In other words, you may claim the full tax credit for a particular qualified hybrid vehicle if you purchased the vehicle before the sale of the 60,000th unit. After that, you may claim 50 percent of the tax credit in the immediate second and third calendar quarters. You are entitled to claim 25 percent of the tax credit in the fourth and fifth calendar quarters. After the fifth quarter, you will not be able to claim any credit at all.

Up to 2010, the only automobile manufacturers to have reached the 60,000 mark are Honda, Volkswagen, Ford, and Toyota. You can claim full tax credits for qualified hybrid and alternative cars produced by other manufacturers through Dec 31, 2010. If you prefer Honda cars, you can take a look at the Honda Civic GX which is powered by natural gas. Available in California, Utah, Oklahoma, and New York, the tax credit is $4,000.

Under IRC Section 30D, there’s also tax credit for plug-in electric drive motor vehicles. The maximum credit allowed for this type of vehicle is $7,500. The tax credits starts to phase out once a manufacturer sells a minimum of 200,000 qualifying vehicles for use in the U.S. After that, you can claim up to 50 percent of the tax credit within the first two calendar quarters and 25 percent in the following third and fourth calendar quarters. At this point, the phase-out period ends so you will not be able to get any tax credit for the vehicles purchased from this particular manufacturer. Some of the vehicles which still offer the full credit of $7,500 are the Chevrolet Volt 2011, Coda Sedan 2010, Nissan Leaf 2011, Tesla Roadster 2009-11, Think City 2011, and Wheego LiFe 2011.

2011 new car tax credits can be quite confusing. However, tax credits are valuable because the credit amount can be quite substantial. Use TurboTax Online today to ensure you claim every tax credit you qualify to claim.