Don't Mess With Taxes

Car sales tax break for no-tax states

Gas prices went up again today. It's the 48th straight day they've increased, matching a record for this decade.

If that trend continues, some folks might be seriously thinking about buying a new, more fuel-efficient car.

What makes the option, even in a recession, more appealing is that there are some tax breaks associated with certain vehicle purchases.

And the IRS just improved one of those tax benefits that had been out of reach for some buyers.

The American Recovery and Reinvestment Act of 2009, aka the latest stimulus package signed into law on Feb. 17, includes a deduction for state and local sales and excise taxes paid on the purchase of new cars and other vehicles.

The deduction also covers taxes paid when you buy a new light truck, motor home or motorcycle. 

This tax break, as most do, also has some limits (which I'll get to later), but for most people, it is a welcome addition to the tax code. Unless you live in a place with no state sales tax.

The residents of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon, however, have been feeling a a little bit cheated.

Not to worry. The folks at the IRS and Treasury Department put their heads together and decided that lawmakers really meant to give everyone, regardless of their state's lack of a sales tax, a more-or-less equal break. So the feds announced that the new vehicle deduction also is available in states that do not have a state sales tax.

Buyers of qualifying vehicles in no-sales-tax states will be able to deduct other fees or taxes imposed by their state or local governments. These fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per unit fee.

"This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax," said IRS Commissioner Doug Shulman in announcing the deduction interpretation. "This means that more people can take advantage of this deduction when they file their tax returns next year."

Other rules remain: Now about those limitations I mentioned earlier. While everyone now is a bit more pleased with the vehicle sales tax deduction, like almost every other tax, it has some limits.

Qualifying vehicles must be purchased between Feb. 17, the date the stimulus bill became law, and Dec. 31. If you bought a new auto in the first six or so weeks of the year, you are out of luck when it comes to this deduction, which you'll claim on your 2009 tax return that you file next year.

The amount of your deduction also is limited by the price of your vehicle. You can only count the taxes (or other eligible fees) paid on the first $49,500 of the purchase price of the vehicle.

Here in Austin, the sales tax is 8.25 percent (part of the price of not having an income tax in Texas). If the hubby and I bought the new $66,000 Mercedes we've been dreaming about, we wouldn't be able to deduct the entire tax amount. 

Rather, we could only count the tax on $49,500 of the vehicle's purchase price, or $4,084. 

Be sure to hang onto your auto sales documents that list the price of the vehicle and precise amount of tax paid. You'll need the information when you file.

And the amount of the deduction is phased out if your modified adjusted gross income (that's your AGI with some things added back in) is between $125,000 and $135,000 and you file as an individual taxpayer or between $250,000 and $260,000 and you and your spouse file a joint return.

Claiming the deduction: As I mentioned, you don't have to itemize to claim this tax break.

If you take the standard deduction, and most people do, you'll simply add the eligible tax to your standard deduction amount on your 2009 tax return.

For example, the standard deduction in 2009 for married couples is $11,400. If a couple pays 6 percent sales tax on a $30,000 car, they can add the $1,800 sales tax to the $11,400 and claim a standard deduction of $13,200.

If that couple is in the 25 percent tax bracket, that $1,800 deduction could be worth $450 in tax savings.

For folks who do itemize, if you you choose to deduct to deduct sales taxes instead of income taxes, you can claim your vehicle taxes on your Schedule A as part of your overall sales tax deduction.

Even better, in this case, you're not limited to the $49,500 purchase price cap or the income phase-out limits. You can deduct the full amount of the sales tax (to the extent that it does not exceed the general sales tax rate) either as part of your detailed listing of all our sales tax receipts or by adding the vehicular tax amount to the sales tax table for your state that the IRS provides.

Neither are you subject to the income limits that apply when the new vehicle tax deduction is claimed as part of the standard deduction.

Added tax benefits: If the high gas prices prompt you to buy a hybrid, remember that some of those vehicles also can get you a tax credit.

Toyota and Honda credits have disappeared and Ford's hybrid credit will phase out a bit more come Oct. 1, but full credit amounts remain for eligible GM and Chrysler vehicles. Not that Uncle Sam, majority shareholder in those last two U.S. car makers, has any preference. You do your homework and see which hybrid, with or without a credit (IRS keeps track of the qualifying makes and models), is best for your driving needs.

And you might also want to wait just a bit if you can. Tax Update Blog notes that Capitol Hill is exploring the possibility of even more auto purchase incentives via a "cash for clunkers" program.

Under one proposal, folks who traded in what the government deemed gas guzzlers would get vouchers of $3,500 or $4,500 to use toward the purchase of a new vehicle with better mileage.

If that idea does eventually make it into law, it looks like the latter part of 2009 might be a good time for you to visit whatever dealerships remain in your neighborhood and see what kind of sticker price and tax break deals you can get.

Ford bests Toyota & other auto/tax news

Well, here's an unexpected bright spot for U.S. automakers:
Ford outsold Toyota for the first time in at least a year.

Of course, the rest of the story isn't really that that positive. The American automaker didn't best its Japanese counterpart. Rather, Ford didn't have as big a drop-off in sales as Toyota.

But, hey, any straw for an industry that's grasping.

Toyota saw a 42 percent decline in April, while Ford's U.S. sales fell "just" 32 percent. Meanwhile, the country's top-selling car maker, General Motors Corp., reported a 33 percent drop.

Bankruptcy bargains: Meanwhile, Chrysler is now dealing with bankruptcy. That might be why a Chrysler Dodge dealer in Spring, a Houston suburb, is offering 45 percent off all Dodge Ram trucks.

If you don't live in the Houston area, other Chrysler dealers across the country might be using the same price-cut approach to get auto buyers to at least take a look. If you're a decent haggler, you could drive off with a half-price new truck. When's the last time anyone was able to say that?

Lower price plus tax breaks: There's no 2009 Ram truck on the IRS list of vehicles eligible for the hybrid tax break. However, this year's Chrysler Aspen and Dodge Durango hybrids will each get buyers a $2,200 tax credit. 

Those vehicles are just part of a decent-sized group of 2009 hybrids from a variety of automakers that could pay off for purchasers at tax time.

A quick note about the IRS hybrid list referenced in the previous paragraph. That list was dated March 19. Although it doesn't say so, it looks to be for use when filing 2008 returns. The reason I suspect that is because Honda hybrids purchased in 2009 are no longer eligible for the tax credit. This year marked the complete phaseout of that automaker's hybrid credit. But if you bought a 2009 model last year, you can claim the final, lowest credit amount on your 2008 return, which you might be filing as late as Oct. 15 if you got an extension.

Many other makes and models, however, could still provide you with a tax credit. And that's in addition to the just-enacted sales tax deduction for new car purchases. Not a bad doubling up of tax savings.

Doing the racing double: Speaking of doubling up, my May racing column discusses why NASCAR drivers should be part of two races on the Sunday of Memorial Day weekend. 

You can check out why this fendered/open wheel option needs to return in "Doing Double Duty" in my Truckers News'  Views from the Grandstands column.

Related posts:

• Energy-efficient vroom vroom!
• Phaseout of Ford hybrid credit starts 4/1
• Automotive tax-o-rama
• Time to hike the federal gas tax?
• Crazy Woman Driver takes a Sunday drive

Energy-efficient vroom vroom!

I'm a race fan.

In fact, when I began writing this, I was watching the NASCAR Nationwide series race from Talladega. Earlier in the day, there was Sprint Cup qualifying from 'Dega.

And before that, on DVR because 6 a.m. is just too darn early any day, but especially on a Saturday, the F1 boys fought for the pole in Bahrain. The hubby and I will watch that tape tonight as part of our exciting weekend.

So, being a confirmed fast and furious addict, when Forbes magazine said it had found the 10 fastest fuel-efficient cars, I had to take a look. 

I won't spoil the surprise, but as you might suspect, and Forbes acknowledges, "fuel efficiency" is a relative term and the economy ratings of the vehicles on the list are less than stellar. Still a couple get around 20 miles per gallon.

My celebration of stylish gas guzzlers, especially given climate issues and last week's Earth Day celebration, might seem a bit out of place. In my defense, my dreams of owning one of the vehicles on the Forbes list is just that: a dream.

Although the Corvette or even the Mercedes convertible that made the list just might, with a little budget finagling, be doable….

Pricey Prius: Of course, sticker shock can be an issue for very fuel-efficient autos, too.

Take the Prius. A lot of folks have crunched the numbers to see how long it would take for pump price savings to offset the popular hybrid's manufacturer's suggested retail price. In some cases, the answer was "never" and buyers opted instead for strictly gas-fueled autos that get respectable mileage.

So Toyota is dropping the price of a Prius somewhat.

The Japanese automaker announced last week that a base model Prius priced at $21,000 will be available later this year.

The most expensive, fully loaded Prius model, however, still will cost around $27,000.

Vehicular sales tax break: The federal tax credit for buying any Toyota hybrid is long gone, but if you still want one of the Japanese car maker's vehicles, hybrid or otherwise, you can still get some help from Uncle Sam.

As has been the case for the last few years, the sales tax on your auto purchase can be added to the other state and local sales tax amounts you claim on your Schedule A. This tax break, however, requires two things.

As indicated by the Schedule A reference, you have to itemize to claim it. And most taxpayers then must choose between claiming the amount of state and local sales taxes paid and state and local income taxes paid.

But thanks to a provision in the American Recovery and Reinvestment Act signed into law on Feb. 17, you don't have to itemize to claim the auto sales tax deduction on your 2009 return.

Early reports indicated that folks who take the standard deduction, which the majority of taxpayers do, will add the eligible vehicle sales tax to that amount. This is the same process used this filing season by standard deduction filers who added real estate tax payments to that amount.

However, IRS statements to date simply say that "this deduction will be on your 2009 tax return" and "you don't even have to itemize in order to take it. If you meet the income guidelines and your vehicle meets the qualifications, you can take it on your tax return."

The IRS' own Seven Facts about the new deduction are equally vague about the specifics. But since we still have nine months before we have to worry about fling our 2009 taxes, we can wait for the IRS to sort out details.

Vehicle sales tax limits: Now about those qualifications. As is the case with most tax breaks, there are a few rules to follow in order to get this easier-to-claim sales tax deduction.

Only new vehicles purchased on or after Feb. 17 and by Dec. 31 of this year qualify for the deduction.

Note the words "new" and "purchased." If you're leasing a car or you're buying a used car, this tax break does not apply. Your vehicle, however, doesn't have to be a 2009 model. As long as you are its first owner, the vehicle qualifies as new.

Also note the word "vehicles." Your motorized purchase doesn't have to be a car. The new tax deduction also applies to newly acquired SUVs, light trucks or motorcycles as long as they weigh no more than 8,500 gross pounds. That means some motor homes (aka RVs) also qualify.

The deduction, however, is limited to the state and local sales and excise taxes paid on up to $49,500 of the vehicle's purchase price. So if you buy, say, that Mercedes-Benz convertible I covet for $65,000, then tax on $15,500 of the auto's purchase price is not deductible.

In addition to the vehicle price, you have to pay attention to your income. The deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

Earth Day tax breaks

Happy Earth Day!

To encourage us to be more environmentally friendly not just on April 22, but on every other day of the year, Uncle Sam offers several tax breaks.

Home
As noted in my earlier post on Missouri's energy-efficient appliances sales tax holiday, you can claim a tax credit on the federal level for certain home improvements.

The American Recovery and Reinvestment Act (AKA the Obama stimulus) which became law on Feb. 17 offers taxpayers a credit of up to $1,500 for some energy-efficient home improvements.

Under the federal credit, which can be claimed on 2009 returns filed next year, eligible improvements include such residential upgrades as air conditioners, furnaces, storm windows and doors, insulation and even window film, as long as the products meet Energy Star standards.

The table on page four of this story, 7 housing laws you don't want to miss, offers an overview of some of the new federal home energy tax credit. Additional info, and a longer table, can be found at EnergyStar.gov.

Auto
Gasoline prices are still relatively low, but I suspect they'll creep up as the summer vacation driving season nears. That might get some folks thinking about buying a new energy efficient auto.

Some hybrids still offer decent tax credits. The tax break for Ford hybrids has begun phasing out, but if you're a dedicated GM fan and believe the automaker will survive, the full credits are still available for its eligible hybrid vehicles.

The IRS has put together a table listing 2009 model year hybrids and their credit amounts. You can find prior model years and credits at this IRS page.

Charity
Contributions to charitable organizations generally are deductible as long as you itemize. Give to an IRS-qualified group that supports environmental causes and you get the two-fer of supporting a good eco-cause and reducing your tax bill on next year's return.

Locally, I'm a fan of the Lady Bird Johnson Wildflower Center. But there are lots of worthwhile environmental causes out there. Check out IRS Publication 78 to find one that meets the tax agency's standards and your philanthropic inclinations.

Phaseout of Ford hybrid credit starts 4/1

With all the hubbub surrounding the crashing economy and stimulus payments, not to mention end-of-year tasks (tax and otherwise) and new year's resolutions (tax and otherwise), this slipped right past me.

Ford hit the magic 60,000 hybrid sales mark in the fourth quarter of 2008. Actually, it went over it. By the end of last year, the auto manufacturer had sold 66,157 hybrid vehicles.

You know what that means. The tax break for hybrids will start to phase out. Soon. Like in a week and a half.

Ford phaseout time line: Under the law that created the tax break back in 2006, the full hybrid tax credit remains in effect for eligible vehicles as long as they are purchased through the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid.

Yeah, I know, that's pretty unwieldy language.

Basically, it just means that after an auto manufacturer hits the hybrid sales mark, buyers have three months to drive away in the affected hybrids, like an Escape pictured there to the left, and then claim the full credit amount on their tax returns for that year.

Since Ford hit 60K in the fourth quarter of 2008, buyers of the automaker's eligible hybrids, including those bearing its Mercury nameplate, can get the full credit for purchases through the fast-approaching March 31.

But on April 1, the Ford and Mercury hybrid credits are halved. No fooling.

That lower credit runs through the second and third quarters after hitting the 60,000 sales marks; that is, you get half credit for qualified Ford and Mercury hybrids bought between April 1 through Sept. 30 of this year.

After that, the credit is reduced again. Buy a Ford or Mercury hybrid from Oct 1 of this year through March 31, 2010, and you'll get to claim only a quarter of the vehicle's original credit amount.

And when April 1, 2010, rolls around, the credits for Ford and Mercury hybrids disappear. No fooling again.

Claiming the credit: Tax breaks for hybrids and other "alternative motor vehicles" are claimed on Form 8910. The various types of eligible autos are:

• Hybrid,

• Advanced lean burn technology,

• Alternative fuel,

• Fuel cell, and

• Plug-in electric drive motor.

Details on each of these vehicles are found in Form 8910's instructions. That IRS document also lists the eligible makes and models, as well as maximum credit amounts, for qualified hybrids and some of the other credit qualified vehicles. Did you know Mercedes-Benz makes several tax-credit-worthy alternative motor vehicles?

You also can view the hybrid tax credit information at the IRS' special hybrid vehicles Web page, which has links to the eligible vehicles by model year. In those model year pages, you'll find the precised amounts, by date where applicable, of the credit you can claim.

Credit reductions: Remember, too, that if you bought a Toyota or Lexus hybrid last year, you can't claim a credit on your 2008 return.

Because of the popularity of that Japanese automaker's fuel-efficient vehicles, particularly the Prius, it hit the 60,000 sale mark first and its credits were completely phased out well before 2008 arrived.

If you bought a Honda hybrid last year, you'll have to do some extra figuring to come up with your credit amount, as Honda's credit began phasing out in 2008.

Honda hybrids purchased by June 30, 2008, are worth a 50 percent credit. Buyers of Honda hybrids between July 1, 2008, and Dec. 31, 2008, qualify for a credit that is 25 percent of the original amount.

And if you bought or plan to buy a Honda hybrid this year, you'll get no credit on your 2009 tax return.

Fans of other hybrids have a bit more time to buy and get at least some tax break. Of course, the Ford and Mercury hybrid tax breaks start phasing out in a few days, as noted earlier in this post.

But eligible hybrids made by the various divisions of GM, as well as those made by Chrysler, Nissan and Mazda are still worth their full, original credit amounts and probably will stay there for a while based on the latest sales numbers.

Also keep in mind that the alternative motor vehicle credit, entered on line 54 of Form 1040 (you have to check the "c" box and write 8910 on the form), is nonrefundable. That means that if you owe $400 in taxes and are eligible for a $1,000 hybrid credit, you can only use that credit to zero out your tax bill. In this example, $600 of your hybrid credit will be wasted.

Is a hybrid worth it? In addition to the tax considerations, potential hybrid buyers also must take not only environmental concerns into account, but also overall economic considerations.

Hybrids, in most cases, are more expensive than their regular fossil-fuel consuming counterparts. That means you're going to need a lot of gas savings over several years to offset the vehicle's higher price.

And as a recent Kiplinger story notes, with cheaper gas now on every corner, some drivers may find it harder to justify the premium you pay for a hybrid.

Tax moves you must make today

Are you ready to party!? I don't want to get in the way of your New Year's Eve preparations, but I do want to mention a few literally last-minute tax moves that could be a real cause for celebration.

Since time is fast running out, I'll be quick.

Charitable giving
You've got to make charitable gifts today if you want to claim them on your 2008 return. This means getting any clothing or household appliances to your favorite charity's drop-off location before it closes this afternoon. 

You have a bit more leeway with monetary contributions. Most nonprofits take credit cards, so call this morning and charge your 2008 donation. As for gifts by check, Joe Kristan, who writes Tax Update items for Roth & Company, PC, has the scoop on getting your contribution in the mail.

Investment moves
Did your portfolio suffer some losses? Whose didn't? If you haven't already sold those stinky stocks, call your broker now! If you do have any gains, you can use those losses to offset them. If everything is on the loss side of the ledger, you still can use up to $3,000 in losses to help reduce your ordinary income.

Home tax breaks
Don't forget the tax breaks offered by your home. Make your Jan. 1 mortgage payment today so that the interest amount can be deducted on your 2008 Schedule A. The same early-payment strategy applies to deductible real estate taxes.

State and local sales taxes
Congress finally got around in late October to renewing the sales tax deduction. Most folks will use the tables provided by the IRS instead of tallying the state and local levies on hundreds of register receipts. But one large sales tax amount is worth noting: the amount charged on an auto purchase. You can add that sales tax amount to the table's number. I'm not saying you need to rush out and buy a vehicle today, but I am just saying if you're close to making such a purchase, it might be worth it to close the deal today.

Automotive tax benefits
And if that new auto is a hybrid, you could get a tax twofer. The tax credit for hybrids is still in effect. The only problem is that the amounts for the most popular hybrids are long gone or fading fast. Toyota's hybrids no longer carry any added tax benefits. Tax credits for Honda hybrids disappear on Jan. 1, 2009. So if you want a hybrid Accord or Civic, get to your Honda dealer today.

Higher education
Going to college or got kids in school? Then William Perez, who pens About: Tax Planning: U.S., says you should consider paying some of those upcoming higher education costs today. Check out his advice on prepaying college costs.

OK, enough tax talk. I'll let you get to these final tax tasks so you'll still have plenty of time to get ready for your New Year's Eve festivities.

Have a fantastic time tonight and be sure to raise a glass of bubbly to salute not only the arrival of 2009, but also all the tax-smart year-end moves you've made.

Time to hike the federal gas tax?

So many good headlines on today's New York Times' editorial pages.

"Heaven for the Godless?" "Curbing Credit Card Predators." "Why We're Still Happy." And my favorite: "Stop Being Stupid."

But since the ol' blog's bread and butter is taxes, I'm directing your attention to "The Gas Tax."

The paper's editorial writer argues that the only way to make the auto bailout work is to ensure that motorists purchase the fuel-efficient vehicles the car makers must build in order to keep the federal money.

The worry is that as long as gasoline stays below $2 a gallon, we'll all go back to our profligate driving ways. That's probably a good bet.

As a nation, Americans tend to be very reactive. When gas was very expensive not so long ago, we quit driving as much and/or traded our gas guzzlers for economy cars.

But, being a relatively young country and too often acting like irresponsible teenagers, it wouldn't be a big surprise to see us all out, as we used to say in my small hometown during the '70s before that decade's fuel crisis, dragging main, wasting both time and fuel.

The big question now is, do we really need a paternalistic government to keep us from hurting ourselves? Can't we just grow up and do a bit of long-range, adult planning, at least when it comes to our vehicles? Of do we indeed need to feel the pocketbook pinch, either from OPEC or Uncle Sam, to change our driving and vehicle styles?

Sadly, I think the NYT editorial writer in this instance is right. Case in point from the column: "It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November."

Current fuel taxes: The American Petroleum Institute issues quarterly reports on gasoline and diesel taxes. You can see the latest data, issued Oct. 1, in this previous blog post.

The map below, which you can click for a larger (and clearer) image (or here if you're reading via feed), offers a bit of a preview.

The colors are key. Red states have combined federal and state gas taxes greater than, and in some places much greater than, 48.4 cents per gallon. Yellow state taxes are between 40 and 48.04 cents per gallon. Blue states charge less than 40 cents per gallon.

When API updates its information in a few weeks, we'll let you know here on the ol' blog how much in fuel taxes you're paying.

Some hybrid tax breaks still available: Of course, if you are a driver who, because of fuel prices, taxes or environmental concerns, has decided to make a change, an obvious choice is a hybrid.

And Uncle Sam is still offering you some tax incentive for going this route. By buying an eligible hybrid by Dec. 31, you can get a tax credit on your 2008 tax return.

Unfortunately, the most popular hybrid, Toyota's Prius, will not be of any tax benefit. The law (and lawmakers) that created this tax break decided to punish car companies for being forward thinking, making well engineered cars and being successful in selling them. Once a manufacturer sells 60,000 hybrids, the tax credit phases out. The Prius, and its fans, were the first to pay this tax price.

If you're a Honda fan, a couple of that Japanese automaker's hybrids will still get you a bit of a break. But those credits disappear, too, come Jan. 1, 2009. So hurry is you want a hybrid Accord or Civic. Details on the credit amounts can be found at this IRS Web page.

American automakers came late to this party, but that means that their hybrid vehicles -- and more have been approved the IRS over the years -- afford you the largest (and soon only) tax credits.

The IRS keeps a running list of eligible vehicles and their credit amounts on this Web page. Just scroll down past the text for the tables.

Energy Tax Incentives Act of 2008

With energy issues getting a lot of attention, both because of this year's spike in gasoline prices and the presidential campaign, Congress is renewing pre-election efforts to address the issues.

The House Ways and Means Committee, still under the guidance of Rep. Charles Rangel, has released its latest version of energy tax legislation.

The Energy Tax Incentives Act of 2008 will provide approximately $18 billion of tax incentives for investment in such things as renewable energy, energy efficiency and conservation. As per House pay-go rules, these costs will be offset by repealing tax subsidies for the "Big 5" oil companies and oil companies controlled by foreign governments, e.g., CITGO.

The tax package is expected to be included as part of an overall energy bill, the Comprehensive American Energy Security and Consumer Protection Act (H.R. 6899), which is scheduled to be considered later today.

The debate could get nasty, and take a while, since H.R. 6899 also includes the contentious matter of federal bans on offshore oil and gas drilling.

Individual energy tax issues, too: While there are many corporate energy tax components, individual taxpayers also could see some benefits.

Tax credits for energy-efficient improvements to existing homes would be extended for one year, through Dec. 31, 2008, while the tax credit for residential solar property additions would be extended for eight years, i.e., through the end of 2016. The bill would also increase the current $2,000 per year solar energy credit cap to $4,000. It also would include residential small wind equipment and geothermal heat pumps as credit-eligible property.

On the transportation side, the latest energy tax bill would establish a new credit for qualified plug-in electric drive vehicles. The base amount of the credit is $3,000. If the qualified vehicle draws propulsion from a battery with at least 5 kilowatt hours of capacity, the credit amount is increased by $200, plus another $200 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours up to 15 kilowatt hours.

As with the hybrid tax credit, the credit amount would be pegged to sales. Taxpayers could claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records 60,000 sales. After that, the credit is reduced in subsequent calendar quarters.

But Toyota, the king of hybrids, is not happy with such proposals for electric autos, saying a similar proposal by the Senate unfairly benefits GM's Chevrolet Volt at the expense of shorter-range plug-ins.

And for all the Lance Armstrong wannabes here in Austin and elsewhere, the bill would create a workplace fringe benefit for bicycle commuters. It would allow employers to provide employees that commute to work using a bicycle limited fringe benefits to offset the costs of such commuting, such as bicycle storage.

You can see a summary of all the provisions in this Ways and Means release.

Chances are iffy: Now the hard part -- getting the House and Senate to agree on a bill with these and the other provisions.

The House has passed a couple of energy tax bills and the Senate keeps crushing them. This time, the measure also is expected to face trouble in the House itself.

Republicans Representatives are unlikely to support the measure because of the taxes that would apply to oil drilling and refining companies. The argument against such taxes is that they would discourage investment and exploration of new energy sources and lead to higher prices at the pump.

And, of course, there is the matter of offshore drilling.

So, as we say so often when it comes to tax legislation, stay tuned!

Offshore Alaska rig photo courtesy of Minerals Management Service.

Honda hybrid credit drops again July 1

Attention hybrid shoppers. If you want a gas-electric Honda, you'd better get to a dealership soon.

On July 1 the tax credit for all Honda hybrids will be reduced yet again.

The Honda tax break started its mandated phaseout on Jan. 1. That day, the original credit amounts for each Honda hybrid was cut in half, and that lower level continues for purchases made through June 30.

But after that, the tax savings will be just a quarter of the original amounts.

The table below shows the Honda hybrid credits for eligible vehicles bought last year (and which still can be claimed on 2007 returns by taxpayers who got an extension until Oct. 15 to file their returns), hybrids purchased in the first half of 2008, and vehicles bought on July 1 or later.  

Credit Phaseout Schedule
for Honda Hybrids

Qualifying Vehicle	Full Credit When Purchased By 12/31/07	Reduced Credit When Purchased From 01/1/08 through 6/30/08	Reduced Credit When Purchased From 7/1/08  through 12/31/08	Beginning 1/01/09
2007 Accord Hybrid AT	$1,300	$650	$325	$0
2007 Accord Hybrid Navi AT	$1,300	$650	$325	$0
2007 Civic Hybrid CVT	$2.100	$1,050	$525	$0
2008 Civic Hybrid CVT	$2.100	$1,050	$525	$0

Honda hybrid buyers this year will claim one of the two 2008 credit amounts on the returns they file next year.

And if Honda hybrid aficionados don't buy one before 2009 begins, then they'll be out of luck, as the credit zeros out next Jan. 1.

Hybrids are hot: There are two groups that are actually happy about $4 per gallon gasoline: oil companies and auto dealers, especially those selling hybrids.

As the pump prices have increased, drivers are rushing to trade in gas guzzlers for more fuel-efficient vehicles. That doesn't necessarily mean everyone wants a hybrid; in many cases, a smaller, newer, more energy-efficient auto will do just fine.

Some folks, though, want to go all the way when it comes to gas savings, and that's usually a hybrid.

Here in Austin, hybrids are as hot as our early summer 100-degree-plus temperatures. In fact, according to the Austin American-Statesman, the local demand for hybrids is outstripping supply.

Get in line: The most sought after hybrid is no surprise. Most folks want a Prius.

But many of them will have to be patient. In some cases, drivers will have to wait for months to get behind the wheel of the popular Toyota gas-electric vehicle.

It's nearly as bad for other makes.

One Honda dealer told the newspaper that customers usually have a six-week wait; if they're picky about the color, it could take up to three months. He didn't specify what was the hard-to-get hue.

Size still matters to Texans: But this is, after all, Texas. So small isn't for everyone.

One Austin Chevrolet dealer reports that more of its customers are interested in the hybrid SUV Tahoe, blogged about here when it was named 2008 Green Car of the Year at the Los Angeles auto show, rather than the smaller Malibu hybrid.

"I think it's just Texans," GM dealership owner Chuck Nash told the Statesman. "They want to hang on to their SUV, and they want to get the very best mileage they can."

Tax credit help: One bonus for Tahoes and other Chevy, General Motors, Ford, Mercury, Nissan or Mazda hybrids is that tax credits for these IRS-certified vehicles are still at their original, full amount. Depending on which make and model you choose, that could mean substantial savings.

Even with reduced 2008 credit amounts, Honda hybrids still offer a nice tax benefit to many drivers. This IRS Web page has links to news releases and fact sheets on the various tax breaks for hybrids and other alternative fuel vehicles.

However, In some cases, as evidenced by Austin hybrid hunters, the credit doesn't matter. Toyota hybrids, from the uncontested champion Prius to gas-electric Camry, Highlander and luxury Lexus models, are still big sellers.

Sure, few of us will turn down a tax break, but we take many considerations into account when we decide which car we're going to buy.

Or, as a Toyota spokeswoman told me in this story I wrote for Bankrate.com, "We think that the tax credit is really nice. But we're not sure that it really influences a buyer. There's a combination of factors that makes a hybrid a popular choice right now."

Earth Day tax celebration

I've done my part for Earth Day. I did as little as possible, thereby consuming as little energy as I could, for the first 12 hours of this annual day of attention to environmental issues.

Too bad there's not a tax break for laziness!

But there are scads of other energy and environmental tax benefits. Here's a quick roundup, as well a look at the many ways energy, the environment and taxes are connected.

Automotive: How fitting that Earth Day this year falls in the week when, for the first time in U.S. driving history, the nationwide average price of gasoline hit $3.50 per gallon.

You can count on it going higher as we head into the prime summer vacation drive time. So it's no surprise that politicians are again talking about giving us break from the federal gas tax. One of those is none other than the GOP presidential candidate (I don't still have to refer to him as presumptive, do I?).

John McCain has proposed putting the federal fuel tax, which is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel, on hold from Memorial Day to Labor Day.

University of California at Davis economics professor Christopher Knittel tells Salon that while politically McCain's proposal is a great idea (lower taxes, relief from high pump charges), for the economy and for society at large it's a terrible idea.

Plus, in many cases it's state taxes that add a lot more to the pump prices.

According to the American Petroleum Institute, in the first quarter of 2008 the average state gasoline tax was 28.6 cents per gallon. Add the federal fuel tax and the nationwide average gas tax came to 47 cents per gallon.

For diesel, the average state tax was 29.2 cents per gallon that, combined with the federal levy, made that fuel's total tax 53.6 cents per gallon.

The map below gives a good indication of where gasoline is most costly, tax-wise. Red states have gas taxes greater than 46 cents per gallon. Yellow state taxes are between 40 and 46 cents per gallon. Blue states charge less than 40 cents per gallon. You can click on the map for a larger version (or here if you're reading via feed; to see a map of diesel taxes, click here).

Those figures include the 18.4 cents per gallon due the federal government from its levy. On average, states collected another 18.2 per each gallon of gas. Then the add-ons begin, such as sales tax, gross receipts tax, oil inspection fees, underground storage tax fees and miscellaneous environmental fees. Those extra charges bring the average state gas tax up to 28.6 cents per gallon.

For a full list of state fuel taxes, check out this page compiled by the Federation of Tax Administrators.

Western gas taxes are, on average, typically the highest at 57.3 cents a gallon, with Southern drivers usually paying the lowest gas taxes at an average of 38.4 cents a gallon.

California collected the most in gas taxes: 63.9 cents. Maine was just over the average at 47.5 cents and Ohio just under it at 46.4. Texas, which has a reputation as an oil state collects 38.4 cents per gallon, but that's not the smallest fuel tax figure. Thirteen other states have lower levies, with the lowest state fuel taxes being 26.4 per gallon in Alaska.

If those figures have got you thinking about a more fuel efficient car, then Uncle Sam will reward you with a tax credit for some alternative fuel vehicles. I've covered this in much detail in previous blog entries (collected here; there are a lot, so it'll take a while to load and this item will show up first, so keep scrolling).

A couple of quick reminders in case you don't have time to read all those posts now. First, Toyota hybrids no longer get you a tax credit. Secondly, Honda's tax break now is being phased out, too.

Home: Last year the tax code offered several tax breaks if you made some energy-efficient improvements to your home. Most of those ended on Dec. 31, but the tax credit for installation of a solar-powered water heater or a solar system that generates residential photovoltaic electricity will still get you a tax credit of up to a $2,000 on your 2008 return.

And last week, the Senate Finance Committee included an extension of the solar provisions in a larger tax measure to extend several expiring tax breaks. Several business-specific energy tax breaks also are part of the measure. The committee's chair, Sen. Max Baucus (D-Montana) also has vowed to "build upon this package as it makes its way through the legislative process, with edits and additional items."

You can read Baucus' press release about the tax extenders here. Remarks of Sen. Charles Grassley (R-Iowa), ranking minority member on the panel, can be found here.

Look close to home, too. Some state and local governments, as well as utility companies, also offer incentives for homeowners to go greener. Find out what's available in your area at the Database of State Incentives for Renewables and Efficiency (DSIRE) interactive map.

Charitable deductions: If your favorite environmental organization is on the IRS list of registered nonprofits (check Publication 78 or GuideStar), then any donation you make to it can be deducted on your tax return if you itemize. Some states even allow you to make donations to charities, including many with an eco focus, directly on your state income tax return via check-off boxes.

Ecological investing: You can earn green by green investing, i.e., buying stocks of or mutual funds that include businesses with an environmental focus, such as conservation programs or organic food manufacturers or retailers.

But eco investing also can include buying stock of companies that don't have a direct environmental connection, but which have taken steps to be more environmentally friendly in their operations, such as converting their offices to solar power.

As with all investments, do your homework and find an environmentally friendly fund that meshes with your personal philosophies and financial goals.

Regardless of the investment focus, the tax treatment is the same. If you sell an asset that you hold for more than a year, then you'll pay lower capital gains tax rates on the profit.

Get some eco investing ideas at socialPicks, BellaOnline, or simply Google "green investments."

Well, that's about it for me. I'm going to power down again and do my part to minimize my carbon footprint for the rest of the day.