Ask an Expert: The Hybrid Car Credit and the AMT

I bought a hybrid car last summer, in part to save the planet and in part to save some money by paying for less gasoline. The icing on the cake was the promise of a federal tax credit. Now I’ve heard that because I’m subject to the alternative minimum tax, I don’t get the credit. That stinks. Is it true?

We’re afraid so. The credit—which can be worth as much as $3,000 on 2007 returns—can’t be used by taxpayers who are caught in the grasp of the AMT. And, if you’re on the cusp of the AMT, your money-saving credit can be downsized.

Remember, to know if you’re subject to the AMT, you must figure your tax bill twice, once using the regular rules and then again with the special rules of the AMT. You pay whichever bill is higher. If your regular bill—before applying the hybrid car credit—is just $200 more than the AMT levy, for example, your hybrid credit would be capped at $200. Pushing your tax bill down any further would push you into the AMT… where the credit doesn’t count at all.

Updated for tax year 2007