Federal Tax Incentives (United States)

Published March 2, 2006

See a summary of the hybrid and clean deisel tax credits for all years, and the appropriate forms. The exact amount of your credit may vary. Please consult a tax professional.

Current Models
Make	Model	Tax Credit
Chevrolet	Malibu Hybrid	$1,300
Chevrolet	Tahoe Hybrid	$2,200
Ford	Escape Hybrid (2wd)	$3,000
Ford	Escape Hybrid (4wd)	$2,200
GMC	Yukon Hybrid	$2,200
Honda	Civic Hybrid	$2,100*
Honda	2005 Civic Hybrid (auto)	$1,700*
Lexus	GS 450h	$1,550*
Lexus	LS 600hL	$450*
Lexus	RX 400h	$2,200*
Mazda	Tribute Hybrid (2wd)	$3,000
Mercedes	GL 320 Bluetec (Clean Diesel)	$1,800
Mercedes	R320 Bluetec (Clean Diesel)	$1,550
Mercedes	ML 320 Bluetec (Clean Diesel)	$900
Mazda	Tribute Hybrid (4wd)	$2,200
Mercury	Mariner Hybrid (2wd)	$3,000
Ford	Mariner Hybrid (4wd)	$2,200
Nissan	Altima	$2,350
Saturn	Vue Green Line	$650
Saturn	Aura Green Line	$1,300
Toyota	Camry Hybrid	$2,600*
Toyota	Highlander Hybrid	$2,600*
Toyota	Prius	$3,150*
Volkswagen	Jetta TDI (Clean Diesel)	$1,300

* Credits for Toyota and Honda hybrids no longer qualify for the full amount indicated here. See note in bold below.

The basic rules:

• The vehicle must be placed in service after 12/31/05 and purchased on or before 12/31/10.
• The original use of the vehicle must begin with the taxpayer claiming the credit. The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.
• The vehicle must be acquired for use or lease by the taxpayer claiming the credit. The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.
• The vehicle must be used predominantly within the United States.

These rules are relatively straight-forward. But there's more— and these are more foggy:

• The new tax credit sets a limit of 60,000 hybrids per carmaker. Toyota hit the 60,000 mark in June 2006, and Honda reached the mark in late 2007. Buyers who purchased one of the five Toyota or Lexus gasoline-electric hybrid models before Oct. 1, 2006 will qualify for 100 percent of the credit. Buyers purchasing Toyota hybrids on or after Oct. 1 will receive a reduced credit, based on the exact date of purchase. Those who purchased after Oct. 1, 2007, will receive no tax credit.
• The phase-out of incentives for Honda hybrids began on January 1, 2008—and will be completely phased out on January 1, 2009.
• The credit amount is based on the purchase date of the vehicle.
• The new law for the hybrid tax credit might require taxpayers to recapture their hybrid tax credit if they re-sell their hybrid car or truck.

Surprisingly, for taxpayers who take a lot of deductions or use the Alternative Minimum Tax, the previous tax deduction (which bit the dust in 2005) was more valuable. Details:

• The credit will not reduce your alternative minimum tax, if that applies to you. As stated in Toyota's statement about the new tax credits: "The benefit of the hybrid vehicle tax credit will also be substantially reduced or eliminated if the individual purchaser is subject to the federal alternative minimum tax."
• The credit will reduce your regular income tax liability, but not below zero.
• If you are eligible for multiple tax credits, the hybrid tax credit is taken last after all the other credits (e.g., child care tax credit, mortgage credit, retirement savings credit) have been taken. Any tax liability left over by these reductions will be the maximum dollar limit of your hybrid tax credit. If your hybrid tax credit exceeds your maximum dollar limit, the excess is not refundable, and is lost forever.
• The excess cannot be carried over to another year, or given away to another person.

As you might guess, it's a good idea to get advice from a tax professional before filing.

Prior Incentives

Hybrid car buyers in 2004 or 2005 could claim a $2,000 one-time deduction on 2004 or 2005 tax returns. Because the tax break was a deduction, its value varied, depending on your tax bracket. If you're in the 33% tax bracket, a $2,000 deduction reduced your tax bill by as much as $600. If you're in the 15% tax bracket, it might have been worth $300.

> See the I.R.S. website regarding "Clean-Fuel Vehicle Deductions Available for Certain Models."

How it worked:

• Under the prior rules, the I.R.S. certified all hybrids available to consumers.
• The deduction was limited to new cars, but you could go back as far as 2000, if you haven't already taken the deduction.
• The deduction was a one-time deal.