Getting jolt out of Volt tax credit

Q. I think electric cars are the wave of the future. As soon as I read that [GM's Volt is available in all states], I contacted a nearby Chevy dealer who has been a lifelong friend to get on the list to buy one. He assured me that I'd be among his first 50. The price will be about $40,000. The demand is apparently so great that the dealer will be able to demand full sticker price for some time to come, so I got no price break. However, he assured me that the price hit will be softened by a federal income-tax credit. He estimated that it would be computed to be at least $5,000.

Is this so? How will the credit be computed, and when will I get it?

A. The federal government has often used the income tax to encourage what it perceives as meritorious behavior of taxpayers. The charitable and home-ownership deductions are good examples. Plug-in vehicles are granted a credit in two pieces. The first is a straight credit of $2,500 for each car. The second is based on kilowatt hours of rechargeable battery power. It's $417 for the first five kWh plus another $417 for each kWh above five. From what I could determine, the Volt has a 16 kWh capacity which will result in a credit of $417 plus 11 (16 minus 5) times $417. That comes to $5,004 which added to the $2,500 gives us $7,504. However, the limit is $7,500. That brings the $40,000 price tag down to a more reasonable level. Unfortunately, you will lose part of the credit if your tax liability is less than $7,500 — another example of how the tax laws give better breaks to those who are in higher income brackets. Incidentally, Volts are in pretty good supply now so you ought to be able to negotiate a price lower than the sticker price.