Volume 3 Number 29
July 17, 2006

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TAX CREDIT AVAILABLE FOR TAXPAYERS WHO PURCHASE OR LEASE HYBRID VEHICLES

The tax credit for hybrid vehicles, which was enacted by the Energy Policy Act of 2005, may be as much as $3,400 for those who purchase the most fuel-efficient passenger automobiles and light trucks.

Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.

Since taxpayers may claim the full amount of the allowable credit only up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid and/or advanced lean-burn technology motor vehicle, consumers seeking the credit may want to buy early in the year.

The phaseout period for a manufacturer begins with the second calendar quarter after the calendar quarter in which the manufacturer records its 60,000th sale. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. For quarters after that fifth quarter, taxpayers may not claim the credit.

For example, F Company is a manufacturer of hybrid motor vehicles, but not advanced lean burn technology motor vehicles. F Company sells its 60,000th hybrid car on March 31, 2006.

  • Ms. Smith buys an F Company hybrid car on June 30, 2006, and claims the full credit.
  • Ms. Maple buys an F Company hybrid car on Dec. 31, 2006, and claims 50 percent of the credit.
  • Mr. Grey buys an F Company hybrid car on June 30, 2007, and claims 25 percent of the credit.
  • Mr. Green buys an F Company hybrid car on July 1, 2007, and is unable to claim the credit, because the credit has phased out for F Company vehicles.

Tax credits are available for purchasing certain other vehicles.

Fuel cell vehicles are propelled by power derived from one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel. For passenger automobiles or light trucks, the maximum allowable credit is $12,000 but greater credits are available for heavier vehicles.

Alternative fuel vehicles include those fueled by compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid that is at least 85 percent methanol. The maximum allowable credit for vehicles weighing 8,500 pounds or less is $4,000.

Hybrid heavy trucks: For qualifying hybrid motor vehicles weighing more than 8,500 pounds but not more than 14,000 pounds, the maximum allowable credit is $3,000. For qualifying hybrid motor vehicles weighing more than 14,000 pounds but not more than 26,000 pounds, the maximum allowable credit is $6,000. For qualifying hybrid motor vehicles weighing more than 26,000, the maximum allowable credit is $12,000.