How it Works: Hybrid Tax Breaks
The Feds want you to buy a hybrid. Really…they do, and to back it up they’re offering a tax credit of up to $3,400 for hybrids purchased after 2005. Basically, the amount depends on the efficiency of the model -- based on the average fuel economy in 2002 -- and the expected fuel conservation during the life of the vehicle, as well as an emissions rating qualifier. In essence, the better the conservation, the bigger the tax credit. In order to claim the credit, you’ll need to fill out Form 8910, Alternative Vehicle Credit. Be sure to check with a tax professional about these credits, however, as there are specific exclusions depending on your tax status.
There’s also a catch to the credit. When an automaker sells 60,000 hybrids, the credit dips to 50 percent of the total, starting in the following quarter -- then another 50 percent during the next quarter until the credit gets to zero. So far, only Toyota has hit the 60,000 vehicle threshold; see the following pages for actual credit adjustments beginning in October, 2006. You can also expect that Honda will be at the limit soon, followed by Ford.