Aug 7, 2006

Hybrid-Car Buyers Should Move Fast For Tax Credits

MarketWatch.Com
By Marshall Loeb

NEW YORK -- If you're thinking of purchasing a hybrid car or SUV, which supplements a traditional internal combustion engine with an electric motor to boost fuel efficiency, you should be aware that you could qualify for a substantial credit on your federal income tax.

But you may need to hurry.

The Energy Policy Act, passed by Congress last year, replaced a tax deduction for buying a hybrid with a credit, which is better for the consumer since a credit subtracts directly from your total tax bill.

The IRS Web site, www.irs.gov, lists the qualifying vehicles and the amount of tax credit for each, based on each model's fuel efficiency and reduced emissions.

For example, buying the ultra-efficient Toyota Prius will get you a maximum of $3,150 off your federal taxes.

But that isn't the whole story.

Because of the way the law was set up, how much of that credit you can claim depends on how many hybrids the manufacturer has sold and when they sold them.

Once a manufacturer has sold its 60,000th hybrid of any model, car buyers have until the end of the following calendar quarter to get the whole credit. You can claim half the credit if you purchase in the second or third quarter after, or 25 percent of the credit in the fourth or fifth quarters. After that, you get nothing.

Confused? You should be.

Toyota has already reached the limit and new-car buyers have until Sept. 30 to take delivery of a hybrid if they want to qualify, according to a customer-service representative.

Your best bet is to shop around for a hybrid that you want and ask the dealer about the credit.

If you're thinking about a lease, be aware that you won't qualify for the credit. However, the lessor will and you might want to use that as a bargaining chip in your negotiations.

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