Hybrid Car Tax Credit

If you were wise enough to have already purchased your hybrid car during or before 2003, you probably enjoyed the $2,000 income tax deduction. Known as the "Clean-Fuel" vehicle tax deduction, the incentive is set to phase out in 2007 after a reduction in 2006. Here's the breakdown:

2005: $2000 tax deduction
2006: $500 tax deduction
2007: No deduction under current legislation

That means there is no better time than now to scrap your old car and take advantage of the hybrid tax deduction. If you figure you pay 30% in income taxes, a qualifying purchase in 2005 is the equivalent of a $600 break on the sticker price. Now why would the government grant you a tax credit, encouraging the purchase of fuel efficient vehicles? Hybrid Car Guide has a number of theories about why Democrats and Republicans all support a tax deduction for people who purchase a hybrid car.

There's a couple of things to be aware of here to make sure you qualify for the tax break:

The hybrid car must not be purchased exclusively for business use
The vehicle must be new, and not intended for resale
Tax exempt entities are not eligible
The vehicle must meet emissions tests

It is our hope that the federal government elects to take a lasting position on this tax credit for hybrid automobiles. In the event that the tax policy should change, this informational resource will be kept up to date. In the meantime, you are encouraged to write to your elected representatives urging them to strengthen and extend the tax deduction for hybrid cars.

While there are other tax rebates available for electric cars, hybrid vehicles do not qualify for those incentives.