Congressman McMahon Promotes Additional Incentives for New Car Buyers as Cash for Clunkers Program Ends

August 25, 2009 11:52 AM

Staten Island, NY – With the Cash for Clunkers program ending today, Congressman Michael E. McMahon reminds potential new car buyers who have missed out on the program of the additional incentives provided in the American Recovery and Reinvestment Act of 2009 (Stimulus).

“The Cash for Clunkers program was a huge success, but the fact that it has ended should not deter potential new cars buyers,” said Rep. McMahon.  “The Stimulus bill included multiple tax incentives for the purchase of new cars, including credits for plug-in electric vehicles.  These incentives not only stimulate our economy, they also promote clean energy and protect our environment.  Also included in the bill was a sales tax deduction for the purchase of any type of new vehicle.  I urge my constituents, especially those who did not have the opportunity to participate in the Cash for Clunkers program, to take advantage of these benefits.” 

Below are the additional credits that new vehicle purchasers may be eligible for:

PLUG-IN ELECTRIC DRIVE VEHICLE CREDIT
The Stimulus bill modifies and increases a tax credit included in the Emergency Economic Stabilization Act of 2008 (EESA), which was passed into law at the end of last Congress.  The credit applies to qualified plug-in electric drive vehicle placed in service during the taxable year, and the base amount of the credit is $2,500.

To qualify, vehicles must be newly purchased, have four or more wheels, have  a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity.  The credit is allowed against the alternative minimum tax (AMT). 

The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles. 

PLUG-IN ELECTRIC VEHICLE CREDIT
The Stimulus bill also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles, such as motor scooters. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009 and before Jan. 1, 2012.

To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours.

If the individual qualifies for both the plug-in electric vehicle credit and the plug-in electric drive motor vehicle credit, then the plug-in electric drive motor vehicle credit should be claimed.

CONVERSION KITS
The Stimulus bill provides a tax credit for plug-in electric drive conversion kits.  The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle.  The converted vehicle must have been placed in service after Feb. 17, 2009.  The maximum amount of the credit is $4,000, and it does not apply to conversions made after Dec. 31, 2011.  A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

SALES TAX DEDUCTION FOR VEHICLE PURCHASES
The Stimulus bill provides all taxpayers with:

  • a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes, recreational vehicles and motorcycles through 2009.
  • a deduction of other taxes or fees paid in states with no sales tax. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.

All new vehicles purchased after February 16, 2009 are eligible, and there is no limit on the number of qualifying cars for which an individual can claim the deduction. 

This deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle, and is phased out for individual taxpayers with a modified adjusted gross income in excess of $125,000.  It is phased out for joint filers with a modified adjusted gross income in excess of $250,000.  

Taxpayers who purchase qualifying vehicles  this year can estimate their deduction with the help of IRS Publication 919, How Do I Adjust My Withholding? (See Worksheet 10, Line 10).

TREATMENT OF ALTERNATIVE MOTOR VEHICLE CREDIT AS A PERSONAL CREDIT ALLOWED AGAINST AMT
Starting in 2009, the Stimulus bill allows the Alternative Motor Vehicle Credit (AMVC), including the tax credit for purchasing hybrid vehicles, to be applied against the AMT.  Previously, the AMVC could not be used to offset the AMT. 

The Alternative Motor Vehicle Credit was enacted by the Energy Policy Act of 2005 and includes separate credits for four distinct categories of vehicles:

  • Qualified Hybrid Vehicles: Hybrid vehicles are a combination of gasoline and electric engines. These vehicles have drive trains powered by both internal combustion engine and a rechargeable battery.
  • Qualified Fuel Cell Vehicles: A qualified fuel cell motor vehicle is a vehicle that is propelled by power derived from one or more cells which convert chemical energy directly into electricity.
  • Qualified Alternative Fuel Motor Vehicles (QAFMV) and Heavy Hybrids: For alternative fueled light and heavy duty vehicles to meet the requirements of QAFMV, the vehicles may be either new, original equipment installation vehicles or prior use vehicles that are converted to use an alternative fuel by an aftermarket installer. Qualified alternative fuel includes compressed natural gas, liquefied natural gas, liquefied petroleum gas (propane) and hydrogen. The vehicles may also  operate on certain mixed fuels such as liquefied propane gas or liquefied natural gas and gasoline.  
  • Advanced Lean-Burn Technology Vehicles:  Advanced Lean-Burn Vehicles are passenger cars or light trucks with an internal combustion engine designed to operate primarily using more air than is necessary for complete combustion of the fuel.  The vehicles must also incorporate direct fuel injection technology and achieve at least 125 percent of the 2002 model year city fuel economy rating.


All of the information above is listed and can be accessed on the IRS’ Information Center on the American Recovery and Reinvestment Act of 2009.