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Hybrid Car Tax Deduction
Nearly all of us are now aware that gasoline prices are up and political tensions are high in the Middle East, one of the largest petroleum producing regions of the world. This means higher fuel costs for everyone and is spurring many Americans to look into ways to reduce fuel consumption. Properly maintaining your current car, carpooling and slowing down are all good ways to reduce fuel consumption. A more significant step to reduced consumption is the purchase of a hybrid car. However, hybrid cars can typically cost several thousand more than a non-hybrid equivalent. Thanks to hybrid car tax deductions, much of that difference can be offset by tax credits.
Through 2005, consumers who purchased a new hybrid vehicle were eligible for a “clean fuel” tax credit of up to $2,000. This was really an extension of an existing tax deduction used to encourage the purchase of clean fuel vehicles such as those designed to run on compressed natural gas.
For hybrid vehicles purchased after January 1, 2006 a new hybrid income tax credit is in effect. This new system allows for tax credits of up to $3400. To offset the risk of massive losses to the Internal Revenue Service, a phased expiration of these hybrid car tax credits has been built in. Once 60,000 of a particular manufacturer’s hybrid cars have been sold, the credit is phased out in two stages down to $0. Currently the only hybrid car manufacturer to sell more than 60,000 hybrid cars is Toyota Motor Company. This means that, for hybrid Toyota vehicles purchased between October 1, 2006 and March 31, 2007 the previous hybrid car tax deduction has been halved. This credit is, in turn, halved again for vehicles purchased between April 1, 2007 and September 1, 2007. Hybrid Toyota vehicles purchased after September 1, 2007 will no longer be eligible for a federal hybrid car tax deduction. No other hybrid vehicles are in this position at this time. Hybrid car tax deduction amounts are based upon the vehicles fuel mileage. Hybrid car tax deduction ranges from $250 for GM’s mild hybrid full-size pickup trucks to $3000 for the 2008 Ford Escape Hybrid 2-wheel drive.
In some states, the tax incentives to buy a hybrid car are even more significant. Colorado offers up to $4437 in hybrid car tax deductions depending upon the vehicle purchased. In Connecticut, hybrid vehicles with an EPA rated mileage of greater than 40 mpg are exempt from sales tax. In New Mexico, hybrid vehicles with an EPA rated fuel mileage greater than 27.5 mpg are exempt from state excise tax for the year of purchase. Oregon offers a $1500 tax credit on hybrid cars. In Michigan and Wisconsin, individuals employed in the research and development of hybrid vehicles enjoy reduce state income taxes.
It seems if one thing is constant, it is change. Hybrid cars are changing the very way Americans choose a new car. With reduced fuel costs and substantial tax credits, purchasers can keep more of their own change in their pockets.
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