Getting A Tax Break With Your Hybrid Vehicle

Getting A Tax Break With Your Hybrid Vehicle

Buying a hybrid car gives the phrase “go green” a whole new meaning. Not only is it good for the environment, it’s also good for your pocket book. Check out the tax benefits of hybrid vehicles for yourself.



The government has decided that encouraging drivers to do their part to protect the environment could be better enhanced by offering tax incentives. So 2006 sees a variety of incentives from tax credits to tax deductions.

But before you get too excited, be sure you understand all the regulations. It is a bit complex and not all vehicles that call themselves hybrids actually qualify for the hybrid tax relief programs.

The full on hybrid vehicle uses both a gas engine and an electric engine. The Toyota Prius is an example of a full on hybrid. However some of the other models that call themselves hybrids aren’t classified as such by the government. That’s because some vehicles that do no more than shut the engine off at idle wear the hybrid designation.

The full tax credit is applicable to only the first 60,000 cars sold by the car maker. After that, the amount of the credit goes down. So if you want to be able to take the full tax credit you need to be buy early. Be aware that leasing doesn’t qualify for a tax credit.

The new tax incentive programs are much more valuable than the old programs that were in place. For the exact amount and rules you need to contact the IRC, but ACEEE has provided the following estimates to give you an idea of the tax benefits you might reap.

The Toyota Prius should qualify for the full $3400 tax credit, and it’s the only hybrid to earn this honor. A $2600 credit goes to the Ford Escape 2WD, Honda Insight, and Toyota Highlander 2WD. A $2200 credit is available for the Lexus RX400H, Honda Civic Auto Transmission, and Toyota Highlander 4WD. A $1950 credit goes to the Ford Escape 4WD and Honda Civic Manual Transmission. The Lexus GS450H, Nissan Altima, and Toyota Camry all have a $1300 tax credit. The Honda Accord, GMC Sierra, and Chevy Silverado all get under $1000.

Remember, these are estimates. The actual numbers will have to be obtained from the IRS or you’ll need to wait until they release them.

The basics for being able to take the credit are as follows: you must purchase the vehicle new on or after Jan 1, 2006, and it cannot be for re-sale. That’s pretty simple but there are some other areas that aren’t so clear so be sure you get the details on “all” the rules.

The tax benefits of hybrid vehicles are definitely improving. Have your accountant or bookkeeper find out what your personal options are and take advantage of any tax breaks you can!