Reader Nate asked in a comment to my previous post Refundable Tax Credit and Non-Refundable Tax Credit about the tax credit for buying a VW Jetta TDI. I thought I’d put it in a separate post in case others are also interested.
The government gives tax credits for buying a "green" car. If you are not buying a "green" car, you don’t get a tax credit, but you still get a tax deduction for the sales tax. See previous post Tax Deductions: Above-the-Line, Standard, Itemized, and Miscellaneous for the difference between a tax credit and a tax deduction.
The tax credit is called Alternative Motor Vehicle Credit. It’s been available for a few years now. There are four categories of vehicles under the program. For the average consumers, the two most relevant categories are basically hybrid and clean diesel cars. These cars must be purchased new. Leasing does not get you the credit.
For hybrid and clean diesel cars, once a manufacturer sells 60,000 units under the program, the credit starts to phase out. As a result, the popular Toyota and Honda hybrid cars no longer qualify. For cars that still qualify, the IRS has specific lists of makes and models and tax credit amounts:
To calculate and claim the credit, use IRS Form 8910. The bottom line on Form 8910 feeds to a line on Form 1040.
This tax credit is non-refundable, which means you must have enough tax liability to benefit from it. There is no upper income limit for the credit. It’s not limited to one car either. However, if you are subject to AMT, you effectively don’t get the credit. Unused credit cannot be carried over.
As far as I can tell, if you qualify, you can claim both this Alternative Motor Vehicle tax credit for buying a hybrid or diesel car and the tax deduction for the sales tax paid.