New Tax Credit Numbers for Hybrid Vehicles - Savings Breakdown by the Car and How much you will save

January 23rd 2006

Prius

Tax credits for hybrid cars and other fuel-efficient cars took effect January 1st. The tax credits will vary according to the car you buy, and this can cause some confusion, but it can benefit you to figure it out. The goal of the federal government is to encourage the purchase of fuel efficient (green) vehicles.

If you purchased a hybrid vehicle last year you should check with your tax man to see if you qualify for a tax deduction. But if you buy a hybrid car this year you will receive a tax “credit” that will likely save you much more money. The credit is deducted directly from your tax bill and not just from your income.

There are two elements that the new tax credit is based on. The first element considers the fuel savings of the hybrid compared to the same style non-hybrid vehicle. The second element is based on the estimated lifetime fuel savings.

The tax credits are not as straight forward as you would think. You will need to talk to your car dealer and maybe even your tax preparer to figure out the exact amount saved. The manufacturers have come up with some numbers though.

Ford says you will be able to save $2,600 for a two-wheel-drive version of their Mercury Mariner Hybrid. You will likely save $1,950 for their four-wheel drive models.

Honda estimates you will save $2,100 for their Honda Civic Hybrid. The Honda Insight with automatic transmission will likely save you $1,450 and the Accord Hybrid will save you $650.

According to the American Council for an Energy-Efficient Economy website you will be able to save $3,150 on the Toyota Prius. You need to act quickly on this model because there are a limited number of tax credits per manufacturer. The Federal Government will allow each car maker a total of 60,000 tax credits. The Prius (Toyota) is expected to sell out first, according to some experts.

There may be some sort of tax credit after the first 60,000 tax credits, but it will likely be much smaller. These are tax credits so you will not see the savings until you file your taxes in 2007.