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Transportation & Fuel Source Technology Offers Tax Guidance for Hybrid/Alternative-Fuel Car Owners

Hybrid and alternative-fuel vehicles are well-known for their green credentials, but they can also save you money on your taxes. has taken the guesswork out of tax credits for green vehicle buyers by offering consumers information about cars that qualify for a credit and explaining how and when credits for popular hybrid vehicles are expected to be phased out.

Thanks to the Energy Policy Act of 2005, certain cars purchased in 2006 can earn credits of up to $4,000 and there is still time for buyers to take advantage of these credits in their 2006 filing. To be eligible for the credits, vehicles have to fall into one of four categories: fuel cell, advance lean burn technology, hybrid or alternative fuel. Currently, the only mass- market cars that qualify are hybrids and one natural-gas-powered car, the Honda Civic GX.

The IRS offers credits on a total of 14 cars, ranging from $250 to $4,000. Here is a list of those cars and their corresponding credits:

  • 2006 - 07 Silverado Hybrid: $250 (2WD) or $650 (4WD)
  • 2005 - 07 Escape Hybrid: $2,600 (FWD) or $1,950 (AWD)
  • 2008 Escape Hybrid: $3,000 (FWD or AWD)
  • 2006 - 07 Sierra Hybrid: $250 (2WD) or $650 (4WD)
  • 2005 Accord Hybrid: $650
  • 2006 - 07 Accord Hybrid: $1,300*
  • 2005 Civic Hybrid: $1,700
  • 2006 - 07 Civic Hybrid: $2,100
  • 2007 Civic GX: $4,000**
  • 2005 - 06 Insight: $1,450
  • 2007 GS 450h: $1,550***
  • 2006 - 07 RX 400h: $2,200*** (FWD and AWD)
  • 2006 - 07 Mariner Hybrid: $1,950 (AWD only)
  • 2008 Mariner Hybrid: $2,200 (FWD and AWD)
  • 2007 Altima Hybrid: $2,350
  • 2007 Camry Hybrid: $2,600***
  • 2006 - 07 Highlander Hybrid: $2,600*** (FWD and AWD)
  • 2005 - 07 Prius: $3,150***
*2006 Accord without updated engine calibration eligible for $650 credit.
**Natural-gas powered Civic GX available in California and New York.
***Cars purchased by Sept. 30, 2006, earn the full credit. Those purchased from Oct. 1, 2006, through the end of the year earn 50 percent of the credit.

"For some cars, the amount you can claim depends on exactly when you bought the car," said managing editor Patrick Olsen. "That's because federal rules say that when a manufacturer sells 60,000 of its eligible cars -- as reported to the government each quarter -- the credits will start to be phased out."

The counter began ticking on Jan. 1, 2006. So far, Toyota is the only automaker to have reached the mark, selling its 60,000th hybrid car in the summer of 2006. As stipulated by the Energy Policy Act of 2005, consumers who purchased a Toyota or Lexus hybrid after Oct. 1, 2006, can claim 50 percent of the credit on their 2006 taxes -- for example, $1,575 on a Prius instead of the original $3,150. The IRS phases out the credits in 50, 25 and zero percent steps over the course of a year. Toyota credits, for example, will fall to just 25 percent of the original amount starting April 1, 2007. Honda is expected to exceed the 60,000 mark this year, and other automakers will likely follow.

Under current legislation, the 60,000 quota is not scheduled to be raised.

"There is still an opportunity for car buyers in the market today to earn credits on their 2007 taxes. For those seriously considering alternative fuel models, we recommend that they check with each manufacturer as some of the credits on more popular alternative fuel vehicles will be changing," added Olsen.

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