Hybrid Car

Tax Benefit and Tax Credit for hybrid car

There are many benefits to purchasing a hybrid type vehicle over the regular types that have been offered for years at car dealerships all across the country. Each car manufacturer has jumped on the bandwagon to take advantage of the keen interest consumers have shown in this new style of automobile.

The hybrid car is famous for its energy efficient usage of fuels with its dual-power sources and battery enhanced propulsion features. These gas-electric Hybrids also provide reduced emissions that harm the atmosphere and effect global warming. The U.S. government has promoted the sale of these energy saving vehicles through the offering of a tax credit for hybrid car purchases.

This tax credit is authorized through an Energy Bill that went into effect January 1, 2006. Through the energy bills taxpayers can purchase hybrid car and hybrid SUV passenger cars and receive a large tax incentive that can be used when filing their annual tax returns. The tax credit is based on the type of model of hybrid car that is purchased. This tax saving feature is applied directly to the amount of tax owed and thus the consumer is able to reduce taxable income.

Each automaker produces their own brand of hybrid automobile that has all of the energy saving and emission benefits that are covered under this Energy Bill. The tax credit for hybrid car benefit will vary from automaker to automaker and the particular model of car that is chosen for purchase. Before the most recent signing of the Energy Bill, the tax benefits that were allowed to consumers that purchased a hybrid vehicle were limited to a $2000 deduction on their income tax filing. This deduction was initially slated to be reduced to $500 during the 2006 calendar year.

The new Energy Bill no longer gives this type of financial benefit. Now, the tax benefits can range from $400 to $3400, and is dependent on the make and model of the hybrid car that is purchased. The entire benefit program has been assigned an expiration date of 2009, but will not apply to all models of hybrid automobiles. This is due in fact to the varying number of hybrid automobiles that are sold by each manufacturer.

While one hybrid automobile manufacturer will sell more than others, the expiration of allotted car tax exemption will be sooner, and the 2009 deadline will no longer apply. Since each manufacturer is allotted a limit in sales that can reach 60,000 hybrid automobile sales, before the reduction in tax benefit begins to slowly phase out over the next five sales periods, or quarters. It all depends on the popularity of the particular model of automobiles that are available by each manufacturer and when the limit of 60,000 automobiles is reached, to when the reduction phase is put into place.

There are a variety of figures that determine the tax credit that will be received on each automobile purchased. The items that are considered are the fuel savings that a car will make when it goes over 120,000 miles, which is considered a conservation credit, and a fuel economy credit that is based on the automobiles 2002 model year fuel economy in its weight class. The hybrid car that does better in those two computations receives the higher tax credit for income tax purposes.