The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.
The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
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.
These models have been certified for the credit in the following amounts:
Model Year 2007
Chevrolet Silverado 2WD Hybrid Pickup Truck — $250
Chevrolet Silverado 4WD Hybrid Pickup Truck — $650
Ford Escape Hybrid 2WD — $2,600
Ford Escape Hybrid 4WD — $1,950
GMC Sierra 2WD Hybrid Pickup Truck — $250
GMC Sierra 4WD Hybrid Pickup Truck — $650
Lexus GS 450h — $1,550
Mercury Mariner 4WD Hybrid — $1,950
Saturn Vue Green Line — $650
Toyota Camry Hybrid — $2,600
Model Year 2006
Chevrolet Silverado 2WD Hybrid Pickup Truck — $250
Chevrolet Silverado 4WD Hybrid Pickup Truck — $650
Ford Escape Hybrid (Front) 2WD — $2,600
Ford Escape Hybrid 4WD — $1,950
GMC Sierra 2WD Hybrid Pickup Truck — $250
GMC Sierra 4WD Hybrid Pickup Truck — $650
Honda Accord Hybrid AT w/updated calibration and Navi AT w/updated calibration — $1,300
Honda Accord Hybrid AT and Navi AT without updated calibration – $650
Honda Civic Hybrid CVT — $2,100
Honda Insight CVT — $1,450
Lexus RX400h 2WD — $2,200
Lexus RX400h 4WD — $2,200
Mercury Mariner Hybrid 4WD — $1,950
Toyota Highlander 2WD Hybrid — $2,600
Toyota Highlander 4WD Hybrid — $2,600
Toyota Prius — $3,150
Model Year 2005
Honda Accord Hybrid AT and Navi AT — $650
Honda Civic Hybrid MT and CVT — $1,700
Honda Insight CVT — $1,450
Toyota Prius — $3,150
The Hybrid Phase Out
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid or advance lean burn technology. 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. No credit is allowed after the fifth quarter.
Toyota Motor Sales, U.S.A., Inc., has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealiers has reached the 60,000-vehicle limit during the calendar quarter ending June 30, 2006. Effective Oct. 1, 2006, the tax credit amounts for certified Toyota models will be reduced. The models and allowable credits may be found in news release IR-2006-145, Toyota Hybrids Begins Phaseout on October 1.
Toyota hybrid vehicles purchased before Oct. 1, 2006 qualify for the full credit. For Toyota hybrid vehicles bought on or after October 1, 2006, and on or before March 31, 2007, the credit is 50 percent of the otherwise allowable credit amount. Taxpayers buying vehicles on or after April 1, 2007, and on or before September 30, 2007, can only get 25 percent of the credit.
Credit amounts for Oct. 1, 2006 – March 31, 2007:
2005 Prius — $1,575
2006 Prius — $1,575
2006 Highlander 4WD Hybrid — $1,300
2006 Highlander 2WD Hybrid — $1,300
2006 Lexus RX400h 2WD — $1,100
2006 Lexus RX400h 4WD — $1,100
2007 Camry Hybrid — $1,300
2007 Lexus GS 450h — $775
Credit amounts for April 1, 2007 – September 30, 2007:
2005 Prius — $787.50
2006 Prius — $787.50
2006 Highlander 4WD Hybrid — $650
2006 Highlander 2WD Hybrid — $650
2006 Lexus RX400h 2WD — $550
2006 Lexus RX400h 4WD — $550
2007 Camry Hybrid — $650
2007 Lexus GS 450h — $387.50
Beginning October 1, 2007, taxpayers who buy a Toyota hybrid cannot claim the related tax credit.
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About Chuck Chuckuemeka
Chuck is managing partner of Chuckuemeka & Associates, a nationally focused CPA firm specializing in Accounting, Auditing, Consulting and Tax Advising.
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