Explaining Auto Credits to Shoppers Can Give Dealers Sales Boost

November 16, 2009

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NEW YORK — Although many consumers are leery about making "big-ticket" purchases — such as buying a car — during a recession, dealers may have a few selling points at their disposal simply by explaining to shoppers some of the consumer tax savings that are available.

Laurie Asch, senior tax analyst for the tax and accounting business of Thomson Reuters, detailed some of these last week, sharing how consumers can "wheel and deal" the expiring tax incentive for new-car purchases (which was part of legislation passed in 2009 to boost the economy) as well the tax credits for buying a more energy-efficient vehicle, two of which are new this year.

And by explaining some of these benefits to shoppers — and potentially lowering consumers' hesitancy to buy — dealers can benefit .

Looking at these credits in more detail, if a consumer purchases a new vehicle by the end of 2009, they are allowed to deduct the state or local sales or excise taxes paid on up to $49,500 of the purchase price, officials noted.

"You will get the deduction whether you itemize or claim the standard deduction, and it's allowed for alternative minimum tax (AMT) purposes," Asch pointed out. "You may also claim the deduction for more than one car.

"For example, for a married couple whether filing jointly or separately, each spouse can deduct the taxes for his or her own new car," she added.

But, if the modified adjusted gross income is between $125,000 and $135,000 (between $250,000 and $260,000 on a joint return), the deduction phases out.

Offering some additional benefits, Asch continued: "You do not have to use the car for business, and it doesn't have to be an energy saver."

That said, the vehicle must be purchased by Dec. 31 and the deduction cannot be taken next April if the consumer chooses to deduct state and local sales taxes in lieu of state and local income taxes.

Continuing on, dealers can also let shoppers know that if they buy a new car that is an "energy saver" and also meets any applicable environmental stipulations, they might be qualified for a credit, as well (which are applicable to regular tax and AMT purposes).

Officials emphasized that for some credits, the amount of credits given for certain OEM's vehicles is phased out after a specific number of sales. In other words, even if the vehicle would otherwise be eligible, a full credit might not be available.

Also, the vehicle does not have to be for business purposes, but it must be driven predominantly in the U.S.

The following are some of the options:

Alternative Motor Vehicle Credit

This is composed of separate credits for four different vehicle types, which consist of:

—Qualified fuel cell. The credit is for a base amount of $8,000. Asch recommends that shoppers take advantage of this soon, because the base amount is dropping to $4,000 next year. Also available is an additional $1,000 to $4,000 based on rated fuel economy compared to 2002 models.

—Advanced lean-burn technology. The credit falls between $400 and $2,400, depending on rated fuel economy compared to 2002 models, and an additional $250 to $1,000, based on estimated lifetime fuel savings.

"So, you may be able to claim as much as $3,400 ($2,400 + $1,000) — ask your dealer for specifics. Certain Volkswagen and Mercedes-Benz models are certified for the credit," officials noted. "But because of the phase-out, it has been reduced for Ford and Mercury vehicles, and it's not available for Honda, Toyota or Lexus vehicles."

—Qualified hybrid. This credit is equal to the amount for advanced lean-burn technology vehicles. Officials advise that certain Cadillac, Chevrolet, Chrysler, Saturn, GMC, Nissan and Mazda models are eligible, but with the phase-out, the credit has been reduced on Ford and Mercury vehicles. It is not available for Honda, Toyota or Lexus models.

Also, Asch emphasized that if the new-for-2009 qualified plug-in electric drive motor vehicle credit is available, they cannot claim the qualified hybrid credit.

—Qualified alternative fuel motor. The credit is half of of the vehicle's incremental cost. And if the vehicle meets certain emissions standards, there is an additional 30 percent if available, but it cannot exceed $4,000.

Moving on, Asch explained other credits of which dealers can inform shoppers:

New-for-2009 Qualified Plug-In Electric Drive Motor Vehicle Credit.

The NQPEDMV credit (on the specific models that qualify) is for $2,500, plus $417 for each kilowatt hour of battery capacity over 4 kwhs (over 5 kwhs, after 2009), but it cannot exceed $7,500. This credit has yet to be phased out.

New-for-2009 qualified plug-in electric vehicle credit.

The QPEV credit is good for 10 percent of the "low-speed" vehicle's cost and cannot go over $2,500. However, if a NQPEDMV credit is allowed, the QPEV credit is not allowed.

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