Ford hybrid tax credit: Now you see it, now you don't

Tantalus was a figure in Greek mythology who, for his sins against the gods, was doomed to spend eternity standing in a pool of water below fruit-laden tree branches that moved away from his hand every time he tried to grab a piece of fruit, while every time he stooped for a drink the water receded below his lips.

Ford Motor Co. has recast that myth for modern times, with hybrid lovers in the role of the fallen demigod.

It seems that Ford scored big with its new 2010 Ford Fusion hybrid and 2010 Mercury Milan hybrid. They're so efficient -- at 39 mpg combined city/highway -- that the Internal Revenue Service has approved them for the highest possible level of tax credit for hybrid vehicles: $3,400. That's the same credit it gave to cars like the Toyota Prius and the Honda Civic hybrid and a testament to what a huge leap the Blue Oval is taking in fuel economy.

The problem is that these miraculous testaments to American ingenuity aren't due to hit dealership lots until right around the time that tax credit expires, March 31, or perhaps slightly after that date. That means that environmentally conscious consumers, tempted by the sharp looks and gas-sipping ways of the new mid-sized sedans, will find themselves in the frustrating position of reaching out for that $3,400 tax credit, only to find that it's dropped to $1,700. Hocus-pocus.

That's due to the fact that the IRS program phases out the credits once a car maker surpasses a certain number of hybrid sales (60,000 to be exact). Toyota and Honda long ago broke that threshold, and their vehicles are no longer eligible for any credit at all. But Ford only ...

broke that barrier in the fourth quarter of last year, by selling lots of Ford Escape and Mercury Mariner hybrids. Under IRS rules, the credit on Ford vehicles will fade away, in steps, until it hits zero after the first quarter of 2010. Until March 31 of this year, Ford's four different hybrid vehicles are still eligible for their full credit. But on April 1, those credits will be cut in half. And on Oct. 1, they'll be halved again.

So how do you get a full credit on a car that isn't even for sale yet? According to Ford spokeswoman Jennifer Moore, you can forget about a test drive.The only way to get the full $3,400 on the Fusion and Milan hybrids is to pre-order them, sight unseen prior to April 1. And no chance of kicking the tires on the non-hybrid version, either. Those aren't arriving any earlier than the hybrids.

"Will it give you five months to research the vehicle?" Moore said. "No, it won't. But hybrid buyers are among the most thorough researchers." If you order after March 31, you'll only qualify for the $1,700 credit.

According to a salesman at Galpin Ford in North Hills, buyers can pre-order one of the hybrids today by putting down a $500 deposit. In fact, he said, a customer called just the other day looking to do just that. But here's where it gets complicated. Does that count?

We at Up to Speed called the IRS for a ruling on this matter: Is it possible to get the full credit or not by making a pre-order? Unfortunately, their best advice, thanks to spokesman Robert Marvin, was that we "might want to consult a tax attorney."

We called one. But he took a long time to get back to us, because it turns out this is a thorny issue. In the meantime, we checked the statute:

"The date of purchase determines the amount of the credit available for a vehicle, i.e. whether a vehicle is eligible for the full credit or whether a portion of the credit is phased-out. The placed in service date determines the taxable year in which the credit may be claimed." 

So delivery date doesn't matter. But is a pre-order a purchase?

Ford says it is. "That's our interpretation of the tax code," said Alan Hall, a Ford spokesman, pointing out that when one custom orders a vehicle, it's promised to him or her.

That settles it, we thought. But no sooner did we hang up than Jason Flashberg, a tax partner at Holthouse, Carlin & Van Trigt, called us back. He'd buried himself to the temples in the hybrid code and even put in a call to the IRS' happily named Complex Tax Law Issues Department.

" 'Pre-order' is not a defined term in the code with respects to this tax credit," Flashberg said. Also, "it's not defined as to what 'purchased' specifically means in this case." But in general, he said, purchasing something is understood as having the benefits and burdens of ownership.

The question, then, is whether a $500 refundable deposit can be interpreted as implying the benefits and burdens of Ford or Mercury ownership. "If you are able to put down a $500 down payment and then walk away, that doesn't seem like a purchase," Flashberg said.

If you're going to go the pre-order route, be prepared to make a good argument. On top of that, Flashberg said, if you're one of 20 million American subject to the Alternative Minimum Tax, you can forget it. The hybrid credit is no good for you.

Now we see why they call it the Complex Tax Law Issues Department.

So what's the upshot? Hard to say, but five will get you 10 that you may blow more money on the tax lawyer you hire to defend your right to the full credit than it's actually worth. Those partners at Holthouse, Carlin don't come cheap.

In any event, there's another issue to consider. Even when factoring in the full $3,400 tax credit, both the Fusion ($27,995 base price including delivery) and the Milan ($28,225 base price) will still cost more than the Prius ($22,000 base). That's a pretty expensive piece of machinery to buy on faith alone. 

Of course, you could wait until the Focus or Milan hybrid hits the lots and make sure it's the car you want to drive. You'll have plenty of time to qualify for the $1,700 tax credit, which will, if you buy the Fusion, put you almost on par with its less-expensive archrival, the Toyota Camry hybrid ($26,150 base).

Based on our spending one period in an intro-level financial accounting course back in sophomore year, we're gonna call it a tossup. But the sheer bureaucratic hideousness of the situation is intriguing.

Would Franz Kafka drive a hybrid? And if he did, would it be a Ford?

-- Ken Bensinger

Photo of the 2010 Ford Fusion hybrid courtesy of Ford Motor Co.

Comments

[Ken]

The tac credit is antithetical. The more popular a model is, the less the rebate. Logically, the better the hybrid, the more people purchase ity, the larger the rebate. I have a Ford Escape hybrid (got the 3k rebate). With ther tires filled to the tire manufacture's recommendation( not Ford's!), I get about 40mpg on the highway. Thirty three percent above the stated EPA milage using the (underinflated) Ford recommended tire pressure.

[Sal B]

@Ken:

"I have a Ford Escape hybrid (got the 3k rebate). With ther tires filled to the tire manufacture's recommendation( not Ford's!), I get about 40mpg on the highway. Thirty three percent above the stated EPA milage using the (underinflated) Ford recommended tire pressure."

The reason Ford recommends the tire pressures that it does it for *handling and safety reasons.*

Yes, you can inflate the tire to the *maximum recommended pressure,* [which may be correct for some vehicles in given situations] but that may cause problematic handling on your Ford in emergency situations.

It also will cause premature tire wear in the center of the tread, which will result in having less control in wet weather and buying new tires sooner, thus giving up some of the money you gain in gain mileage. See the illustrations here:

http://www.procarcare.com/includes/content/resourcecenter/encyclopedia/ch25/25readtirewear.html

[CVA]

We were duped out of our tax credit two years ago when we purchased a Ford Escape Hybrid. We thought tax credit met just that. We did not find out until after having our taxes done and scouring our tax forms that we did not receive it. We called our accountant and he said it was eaten up by the Alternative Minimum Tax. The advertising for this tax credit was misleading, nowhere did it say anything about Alternative Minimum Tax ramifications.

[Stephanie Clifford]

Ha ha. Ford shoots, Ford bricks, again. Ford makes me laugh. Seriously, if they are going to continue outsourcing the production of their hybrid powertrains to the Japanese, they are never going to catch up.

[Tim]

@ Sal B: "We were duped out of our tax credit two years ago when we purchased a Ford Escape Hybrid. We thought tax credit met just that. We did not find out until after having our taxes done and scouring our tax forms that we did not receive it. We called our accountant and he said it was eaten up by the Alternative Minimum Tax. The advertising for this tax credit was misleading, nowhere did it say anything about Alternative Minimum Tax ramifications."

AMT?!? Did you really expect your car salesman and/or a pre-printed brouchure to act as a tax accountant on your behalf? That's like expecting the average real estate agent to ask clients about AMT when mentioning the tax benefits of home ownership. If you're affected by AMT, you need to understand the ramifications of that yourself.

[Steve]

the $3400.00 2010 ford fusion hybird tax credit is only good for the amount of tax you owe for the 2009 tax year. if you owe $3000.00 in tax, you can wipe that out, but you cannot get the other $400.00 as a refund. it is what the IRS calls a non-refundable tax credit.

[Steve]

the ford dealers are saying that 2010 fusion hybrids ordered by today will get the $3400.00 tax credit. is that TRUE????