New Hybrid Cars - Tax Information You Need To Know

If you're considering buying a hybrid car or truck, you'll be happy to know that the U.S. government offers certain tax incentives for your purchase. The Energy Policy Act provides a tax credit for those who purchase certain energy efficient vehicles. Since that act passed, it's been up to auto manufacturers to certify to the Internal Revenue Service that certain passenger autos and light trucks qualify for the credit and the amount of the credit. All the consumer needs to do is check with their dealer. If the vehicle qualifies, the amount will be posted at the dealership, usually right on the vehicle itself.

As a buyer, you'll need to meet certain requirements in order to declare a tax credit on your return. The requirements are basic and straightforward. Here they are for your reference:

1. The vehicle must be placed in service after 12-31-05 and purchased on or before 12-31-10, and the original use of the vehicle must begin with the taxpayer claiming the credit.

2. The credit may only be claimed by the original owner of a new, qualifying hybrid vehicle. Used vehicles do not apply.

3. The vehicle must be acquired for use or lease by the taxpayer claiming the credit. You can't buy the car for someone else's use and claim the credit yourself.

4. The credit is only available to the original buyer. Leases don't count as buying. In a lease situation, the leasing company can claim the credit.

5. The vehicle must be used predominantly within the U.S.

Some Tax Credits Phasing Out

The hybrid vehicle tax credit begins to phase out when a manufacturer sells 60,000 qualifying vehicles. As an example, hybrid vehicles produced by Toyota Motor Sales USA qualify only for a lesser percentage of the tax credit. This applies to all hybrid vehicles sold by Toyota Motor Sales, which encompasses both Toyota and Lexus. Check with your dealer, but as of this writing most of these credits are 25% of the original amount.

Finally, when determining what year your tax credit can be applied, you'll need to consider the year in which the vehicle is placed into service. Let's use an example. Let's suppose you purchased a qualifying hybrid vehicle on December 27, 2007 and take possession on January 5, 2008. The amount of your eligible credit can be taken for the 2008 tax year.

The purpose of these tax cuts was designed to stimulate consumer purchase of hybrid vehicles. While we expect some level of tax incentive to remain, we also predict the amounts will lessen over time. The rationale appears to be that hybrid vehicles will be much more accepted over time, thereby negating the need for tax credits.

Are you considering purchasing a new hybrid vehicle? Before you buy, be sure to check out our hybrid car and truck resource site, complete with buying guides, recommendations, and everything you'll want to know when considering new hybrid cars.

By Jim Hofman