Do you qualify for hybrid tax credit?
By Sandra Block
USA Today
Back when gas was selling for more than $3 a gallon, you had to get on a waiting list to buy a Toyota Prius. Now that gas is selling for about $2.25 a gallon, car dealers are adding sweeteners, such as low-cost financing, to move those gas-saving cars off the lot.
But if you paid a premium to buy a hybrid last year, stop kicking yourself. You may be able to recoup some of that money when you file your 2006 federal taxes.
Taxpayers who bought a hybrid vehicle in 2006 are eligible for a tax credit worth up to $3,150. The credit replaces a $2,000 deduction for hybrids purchased before Dec. 31, 2005. (A credit is more valuable than a deduction because it represents a dollar-for-dollar reduction in your tax bill.)
But while the old tax break was straightforward — you bought a hybrid, you got a $2,000 deduction — the amount of the tax credit depends on which vehicle you bought and when you bought it. Some folks who bought hybrids last year might not be able to claim it at all.
You don't have to itemize to claim the credit, but you need to fill out Form 8910, available at www.irs.gov. That form will help you determine the size of your credit, based on these factors:
The tax credit consists of two parts: fuel economy and lifetime fuel savings. The fuel-economy piece, capped at $2,400, is calculated by comparing the vehicle's fuel efficiency with that of a 2002 gas-only-powered vehicle for city driving. The second part of the credit is based on the vehicle's lifetime fuel savings; it ranges from $250 for savings of at least 1,000 gallons of gas to $1,000 for 3,000 gallons, according to tax publisher CCH.
Because of this calculation, the credit ranges from $250 for a two-wheel-drive Chevrolet Silverado hybrid pickup to $3,150 for a Toyota Prius. The manufacturer should be able to tell you the IRS-certified credit for your vehicle. You also can find the maximum credit available for various models at www.fueleconomy.gov.
This is where the tax credit gets complicated, says John Roth, an analyst for CCH. The tax credit begins to phase out after an automaker has sold 60,000 hybrids. Once a manufacturer's sales hit the limit, buyers are eligible to claim the full credit until the end of the quarter in which the threshold was reached and through the next quarter. Then they're eligible for half of the credit for six months. For the next six months, the credit will shrink to 25 percent of the full amount. And then it will disappear.
Because of the phaseout rules, some taxpayers who bought a Toyota Prius last year won't be eligible for the full credit. (Toyota reached the 60,000 mark last summer.) Those who bought a Prius before Oct. 1, 2006, are eligible for the full credit. But if you bought a Prius after Oct. 1, your credit would be cut in half.
The phaseout also applies to other hybrids made by Toyota, such as Lexus hybrids, Roth says. This phaseout is important to keep in mind if you're considering buying a Toyota hybrid this year. You'll get a bigger credit if you buy your hybrid before April 1.
