Understanding the Hybrid Car Tax Credit
New car salespeople may tout the tax credit that buyers of a new hybrid may be eligible for to help steer consumers away from buying a used hybrid car. What unwary consumers may not know is that for some of the more hybrid models, the tax credit is no longer available. The Energy Policy Act of 2005 set forth the rules for the hybrid tax credit; once a car reaches 60,000 units sold, the tax credit is phased out.
2008 Hybrid Tax Credit
According to the Summary of the Credit for Qualified Hybrid Vehicles published on the official IRS website, only the Ford Escape Hybrid and Mercury Mariner Hybrid are still eligible for the tax credit. The Ford Escape and Mercury Mariner 2WD Hybrids qualify for a tax credit of $3,000 and the 4WD models qualify for a $2,220 tax credit.
Toyota Prius Phase Out
Early adopters of the Toyota Prius were able to take advantage of the full $3,150 tax credit. That phased down to $1,575 for cars purchased through 3/31/07 and dropped down to $0 for any new Toyota Prius that was purchased after 10/1/07.
Requirements to take the Hybrid Tax Credit
Having a qualifying vehicle isn’t the only requirement that taxpayers must meet in order to benefit from the tax credit. The following conditions must also be met:
- The vehicle must have been purchased after 12/31/2005 but prior to 12/31/2010.
- The original owner is the only taxpayer that can use the credit.
- The vehicle must get most of its use within the United States.
Special rules also apply to hybrids purchased on a lease or though used by tax-exempt organizations. If one of these two situations apply to you, it would be best to speak with a tax attorney to get circumstance-specific information.
Claiming the Credit
In order to claim the hybrid tax credit, you will need to complete IRS Form 8910, the Alternative Motor Vehicle Credit, and submit this form with your tax return. In order to fill out the form, you will need to know the year, make and model of the vehicle as well as the date that the vehicle was placed in service in the United States. There are additional rules to follow so reading the Form 8910 instructions is imperative.
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