Hybrid Vehicle Tax Credits Are Changing

Those consumers considering the purchase of a new hybrid car or truck may wish to consider some changes in the IRS schedule for deductions concerning those vehicles.

For instance, the most popular hybrid sold in the United States, the Toyota Prius, was eligible for a $3,150 federal tax deduction early last year, but is now only eligible for a $787.50 tax credit, and that drops to zero after September 30. Whenever a manufacturer sells 60,000 units of a hybrid vehicle, the amount of deduction for all of that manufacturer’s hybrid vehicles starts falling until it is phased out completely, and Toyota hit the 60,000 unit mark last year.

But, some good news: Toyota is the only manufacturer that has hit that ceiling, so every other car company that makes hybrids is still eligible for the full tax credit, which is redeemed at tax time by the individual purchaser. Those car companies are Chevrolet, Ford, GMC, Honda, Lexus, Mercury, Nissan and Saturn. It is also worth mentioning that tax credits vary by specific vehicle as the IRS uses a complicated formula to determine fuel efficiency gains of the hybrid model compared to the regular gas model, and awards the tax credits accordingly.

Last year, hybrids accounted for 1.75% of the total new vehicle market in the U.S. This year, with increased demand and more hybrid models available, hybrid market share is up; March 2007 saw 2.47% of total new vehicle sales go to hybrids.

If you’re interested in purchasing a hybrid, here is the list of hybrids eligible for the federal tax credit:

Ford Escape Hybrid 2WD – $3000
Ford Escape Hybrid 4WD – $2050
GMC Sierra Pickup 2WD – $250
GMC Sierra Pickup 4WD – $650
Honda Accord Hybrid AT – $1,300
Honda Accord Hybrid Navi AT – $1300
Honda Civic GX – $4000
Honda Civic Hybrid CVT – $2100
Lexus GS 450h – $775
Lexus RX 400h 2WD, 4WD – $1,100
Mercury Mariner Hybrid 4WD – $2,050
Nissan Altima Hybrid – $2350
Saturn Aura Hybrid – $1,300
Saturn Vue Green Line Hybrid – $650
Toyota Camry Hybrid – $1,300
Toyota Highlander Hybrid 2WD, 4WD – $1300

Finally, because I like you, I’m going to give you a tip. Both the Ford Escape Hybrid and the Mercury Mariner Hybrid (basically corporate twins) currently have a $2500 rebate on them AND the dealer gets another $1000 from Ford Motor Co. when he sells one, so that can be used as bargaining money, AND, Ford is having a tough time making the Escapes/Mariners go away, despite the fact that they’re pretty good vehicles. The rebate plus the dealer incentive plus the obligatory discount off of sticker plus the tax credit, and, the current pump price of gasoline means you can buy an Escape/Mariner and make it to your break-even point concerning the difference between the price of a regular Escape/Mariner and the price of the hybrid version in about 12 months. That’s according to my quick, back-of-the-envelope math, and using average miles of 15,000 miles a year. As they say in a lot of commercials, your results may vary, but after 18 months, you should be there easily. And if the price of gasoline goes up some more, then you’re there even more quickly. Now, that is a pretty good deal.

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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  1. My calculations show you get to break even on the Escape even quicker than your calculations, but either way, it’s really quick. That’s a good bargain. It’s kind of surprising that Ford is not selling those things like crazy, cause it’s the same system as the Toyota. In fact, I think it’s produced by Ford under license from Toyota, I think it’s identical.


  3. One FYI – you must purchase the vehicle in order to get the tax deduction. The deduction goes to the owner of the vehicle, so if you lease a hybrid vehicle the tax deduction goes to the leasing company.

    B Moore

  4. The Nissan looks like a pretty good deal, too. I think that’s the Toyota hybrid system in that car as well. It doesn’t have the big rebate from Nissan that the Escape gets from Ford, but I’d rather get the Nissan quality than a rebate on a Ford.

  5. Man, the GM hybrids don’t get a very big tax credit. What is the deal with that?

  6. The vast majority of people would be better off in terms of gas costs if they just got a small car that gets good fuel mileage instead of buying a hybrid. That’s the plain and simple truth. And the car would also cost a lot less than a hybrid, it’s much cheaper overall.

  7. When do we get the hybrids you plug in at night? Wouldn’t those cars save a lot more gas? What is the holdup?

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