Taxes and Hybrids

Everyone knows that hybrids have many financial benefits, including gas and mileage savings, maintenance savings, resell value, insurance reductions and of course, the tax credit. But what some may not know is the stipulations on the tax credit and how they may affect you and your new hybrid vehicle.

If you’re purchasing a hybrid vehicle all, or in part, for the tax credits offered each year by the federal government, you may need to do even more research on your vehicle than you had originally planned prior to making your purchase.

Although the federal government is offering a tax credit to consumers who buy a green vehicle during the tax year, the these tax incentives are not permanent and consumers who are counting on this credit to offset some of the cost of their investment should educate themselves on the impending dissolution of the green car tax credit.

Called the New Energy Tax Credit, the federal government’s incentive program rewarded drivers for purchasing new hybrid vehicles after December 31, 2005. The tax credit for vehicles purchased prior to 2006 was $2000 at the time of enactment. Many vehicles purchased after December 31, 2005 were eligible for a credit of up to $3,400.

These vehicles include the Ford Escape Hybrid, Mercury Mariner Hybrid, Mazda Tribute Hybrid, Chevrolet Malibu Hybrid, Chevrolet Silverado Hybrid, Chevrolet Tahoe Hybrid, GMC Sierra Hybrid, GMC Yukon 1500 Hybrid, Honda Accord Hybrid, Honda Civic Hybrid, Nissan Altima Hybrid, Toyota Prius, Toyota Highlander Hybrid and Toyota Camry Hybrid, along with several gas-saving green vehicles that are not hybrids.

However, consumers should be aware that even though the above vehicles do qualify for the New Energy Tax Credit they will not necessarily receive the tax credit for their purchase.

The tax credit only applies to each specific car make and model until sales have reached 60,000 units. Once sales reach this peak target for eligible vehicles, consumers can expect a tax credit of only 50% of the original number promised by the tax incentive program and at the next peak purchase point, only 25%. Once a specific hybrid car has reached its maximum sales peak for eligible vehicles, consumers will no longer be able to receive tax credits for their purchases.

For purchases made after October 1, 2007 consumers will no longer be eligible to receive tax credits on the following vehicles: Toyota Prius, Toyota Highlander Hybrid and the Toyota Camry Hybrid, as well as several Lexus gas-saving models.

After January 1, 2009, consumers will no longer be eligible to receive tax credits for the Honda Accord Hybrid and Honda Civic Hybrid. Although tax credits have begun to phase out for many of the mainstream hybrid vehicles, there are still many eligible hybrid vehicles on the market that are worth purchasing if you’re doing it for the tax credit.

It’s also worth pointing out that several new hybrids are coming out in 2009 and 2010, and if the government allows eligibility on those vehicles, you will have another shot at getting the tax credit on even more efficient hybrid vehicles.