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Hybrid Car Tax Credits - How do they work?  Better than Deductions - List of Cars and Tax Credits

July 11th 2006

Hybrid Car Tax Credits - How do they work?  Better than Deductions - List of Cars and Tax Credits

Toyota Prius

The Toyota Prius offers the largest tax credit out of all hybrid cars on the market.  That is the good news.  The bad news is that the Toyota model is selling so fast that they will run out of credits before the other auto-makers.

Each auto manufacture is allotted just 60,000 tax credits.  This is how it works.  At the end of the quarter, after the 60,000 tax credit is reached, the credit drops to 50% of its original amount.  During the fourth and fifth calendar quarters after the full credit runs out, the tax credit drops to only 25 percent of the full amount.

 

Since there is a lag time between the 60,000th sale qualifying for the tax and the end of that quarter, it is possible that more than 60,000 full credits may be issued.  Always check with your tax man before making the deal.

Tax credits are much better than tax deductions because the amount is deducted directly from your tax bill, not your income.  So if your tax bill is $5,000 and you buy a Prius, you could deduct $3,150 from your tax bill.  You would owe only $1,850. 

But it gets better than saving money on your taxes.  The reason the Toyota Prius gets such a large tax credit is because it so fuel efficient.  So as gas prices continue to rise, you can potentially save more money.  Again, check with your tax man first before you decide.  He may also know about state credits or deductions or other savings options.

We have compiled a list of cars and tax credits.  The higher the tax credit, the more fuel efficient the car is compared to other cars in its class. 

 

Here is a list of the tax credits offered by the IRS:

2005 Toyota Prius $3,150

2006 Toyota Prius $3,150

2006 Toyota Highlander 4WD Hybrid $2,600

2006 Toyota Highlander 2WD Hybrid $2,600

2007 Lexus GS 450h $1,550

2007 Toyota Camry Hybrid  $ 2,600

2006 Lexus RX400h 2WD $2,200

2006 Lexus RX400h 4WD $2,200

2006 Ford Escape Hybrid Front WD $2,600

2006 Ford Escape Hybrid 4 WD $1,950

2006 Mercury Mariner Hybrid 4 WD $1,950

2005 Honda Insight CVT $1,450

2006 Honda Insight CVT $1,450

2005 Honda Civic Hybrid MT and CVT $1,700

2006 Honda Civic Hybrid CVT $2,100

2005 Honda Accord Hybrid AT and Navi AT $650

2006 Honda Accord Hybrid AT w/updated calibration and Navi AT w/updated calibration $1,300. The 2006 Honda Accord Hybrid AT and Navi AT without updated calibration qualify for a credit of $650.

2007 Toyota Camry Hybrid  $ 2,600

2007 Lexus GS 450h  $ 1,550

2006 Ford Escape Hybrid Front WD $2,600

2006 Ford Escape Hybrid 4 WD   $1,950

2006 Mercury Mariner Hybrid 4 WD $1,950

 
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