Or perhaps I should go ahead and buy a hybrid vehicle, perhaps the Chevrolet Silverado Hybrid pickup truck. I’ve considered it, but it’s not large enough. Perhaps I should stick with a diesel, and go get some of Willie Nelson’s biodiesel for it. I hear that’s what everyone is going to…
The numbers are in. Toyota and Lexus outpaced their rivals by selling a combined 41,779 hybrid vehicles during the first quarter of 2006. Honda sold 9,072 hybrids and Ford and Mercury sold a combined 6,192 hybrids during the first three months of 2006.
Why are these sales figures important? “Effective January 1, 2006, anyone who purchases a new hybrid vehicle is eligible for a tax credit of up to $3,400,” explains Andrew Schwartz CPA, founder of CPA Niche, LLC (www.cpaniche.com), a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers. “The catch is this credit begins to phase out for each manufacturer upon selling 60,000 hybrids,” as follows:
* The full credit is allowed through the end of the quarter following the quarter during which the manufacturer sells its 60,000th hybrid vehicle after January 1, 2006.
* The credit is cut in half for the subsequent two quarters.
* The credit is then cut to twenty-five percent of the original credit for the subsequent two quarters.
* No credit is allowed for vehicles purchased from that manufacturer thereafter.
The hybrid car tax credit is currently set to expire on December 31, 2010. “Even so, if you’re thinking about purchasing a Toyota or Lexus, don’t delay!” warns Schwartz. “Based on the sales figures for the first quarter of 2006, the allowable credit for their hybrids is on track to be cut in half on October 1, 2006 and then will be fully phased out on September 30, 2007.”
The New Hybrid Vehicle Tax Credit
Prior to January 1, 2006, anyone who purchased a new hybrid was eligible to claim the $2,000 “Clean Fuel” deduction. The Energy Tax Incentives Act of 2005 enacted a more valuable tax credit for hybrid purchasers.
To qualify for this tax credit, the hybrid purchased must be a new vehicle. According to the IRS, “the original use of the vehicle must begin with you”, so used vehicles don’t qualify. Leasing a hybrid doesn’t qualify the lessee for the credit. “If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit,” explains the IRS. And the final condition to qualify for this tax credit is that you use your hybrid predominantly within the United States.
Here are the hybrids currently eligible for this new tax credit:
Chevy Silverado 2WD Hybrid Pickup, 2006 & 2007 – $250
Chevy Silverado 4WD Hybrid Pickup, 2006 & 2007 – $650
Ford Escape Hybrid Front 2WD, 2006 & 2007 – $2,600
Ford Escape Hybrid 4 WD, 2006 & 2007 – $1,950
GMC Sierra 2WD Hybrid Pickup, 2006 & 2007 – $250
GMC Sierra 4WD Hybrid Pickup, 2006 & 2007 – $650
Honda Accord Hybrid AT, 2006 – $1,300 or $650
Honda Accord Hybrid AT, 2005 – $650
Honda Civic Hybrid CVT, 2006 – $2,100
Honda Civic Hybrid SUVEL, 2005 – $1,700
Honda Insight CVT, 2005 & 2006 – $1,450
Lexus GS 450h, 2007 – $1,550
Lexus RX400h 2WD or 4WD, 2006 – $2,200
Mercury Mariner Hybrid 4 WD, 2006 & 2007 – $1,950
Saturn Vue Green Line, 2004 – $650
Toyota Camry Hybrid, 2007 – $2,600
Toyota Highlander Hybrid, 2006 – $2,600
Toyota Prius, 2005 & 2006 – $3,150
Form 8910
To claim this new tax credit, taxpayers need to complete and attach a Form 8910 (available at www.irs.gov) to their federal income tax return.
While the form seems simple enough to complete, anyone subject to the Alternative Minimum Tax (AMT) might completely lose out on this new tax break. “And with more and more people paying this tax each year, working through a tax projection is the best way to determine if you’ll be hit by the AMT the year you plan to purchase your hybrid vehicle,” suggests Schwartz.
Andrew D. Schwartz, CPA is the editor and founder of CPA Niche, LLC (www.cpaniche.com), a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post and Wall Street Journal. He is available for interviews.