Hybrid Car Tax Credit

Starting Jan. 1, 2006, buyers of some hybrid vehicles can get a hefty tax credit. The Internal Revenue Service has not yet officially specified what the tax credits will be, but the officials of the American Council for an Energy Efficient Economy (ACEEE) have completed an analysis based on their current knowledge about 2006 vehicles and the wording of the law. The amount of the credit for each vehicle is based on 3 factors:

(i) Size of the vehicle: The amount of the credit is based on the vehicle's fuel economy as compared to a similar 2002 model-year vehicle. To get any credits at all, a vehicle must get at least 25% better fuel economy than a similar 2002 vehicle.
(ii) Fuel saving: A vehicle could also get a smaller credit if it is estimated to save at least 1,200 gallons of fuel over its lifetime.
(iii) Emissions standards: Vehicles also must meet certain emissions standards to qualify for a tax credit. Note that no diesel vehicles will get tax credits in spite of the fact that some get extremely high gas mileage.

In past years some hybrid vehicle purchases have been eligible for tax deductions. The new credits, however, are subtracted directly from the total tax amount you owe the IRS. That makes these credits much more valuable than just deductions.

So, if you are planning to present yourself a hybrid vehicle during this holiday season, be patient and wait a few days more!
[photo: Toyota Prius]