Is a hybrid car for you? -- page 2

Tax break
A one-time federal tax deduction of $2,000 may help soften the blow. Any car shopper who purchases a new hybrid through 2005 is eligible for the full tax deduction. The tax break will drop to $500 in 2006 and disappear in 2007.

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And owners of fully electric vehicles get an even better break: a tax credit up to $4,000 for the 2005 tax year, then $1,000 in 2006. As with the clean-fuel deduction, the electric car credit is scheduled to end in 2007.

"It's a laudable attempt by the federal government to get you to buy a fuel-efficient vehicle," says Bob Trinz, a senior tax analyst at RIA, a Thompson business providing tax information and software to tax professionals..

Even a hybrid owner who takes a standard tax deduction will qualify for this deduction.

"You need not itemize to claim this," Trinz says. "It's commonly described as an above-the-line tax deduction."

The above-the-line tax breaks are at the bottom of the first page of the long Form 1040. You claim the one for your hybrid car on the line that instructs you to total all adjustments to your income; be sure to write the words "clean fuel" next to your deduction amount.

Some states also offer tax breaks to hybrid-car buyers, as well, so ask your state's tax department about hybrid cars. It could save you some serious cash on a state tax bill.

And Virginia residents who buy hybrid cars get an additional perk -- driving in high-occupancy-vehicle lanes at all times, regardless of the number of occupants, until July 1, 2006.

But a lot of car shoppers who would consider buying a hybrid aren't bothered by the extra costs, according to a recent survey by J.D. Power.

Many say they would go forward with a hybrid purchase if they could recover at the gas pump just half of the additional cost.

For example, they'd be willing to shell out $4,290 more for a Civic Hybrid as long as they could save $2,145 in gas expenses while they owned the car. A Hybrid owner who drives 15,000 miles a year could achieve that goal after five years with the help of the one-time federal tax deduction.

Why do people seem willing to take a financial hit when purchasing a hybrid car?

"Many of the consumers that are buying a hybrid today are doing so because they're early adopters of new technology," says Pratt. "They care about and want to protect the environment, they want better gas mileage, or all three, and they're willing to pay a price premium for a hybrid vehicle to do so."

Thanks to impressive fuel efficiency and squeaky-clean emissions, hybrid cars are much kinder to the environment than traditional cars.

For example, the Toyota Prius is 90 percent cleaner than the average new 2005 car, according to the California Air Resources Board. This five-passenger sedan is considered a Super Ultra Low-Emission Vehicle (SULEV). And with a gas mileage of 60 mpg in the city and 51 mpg on the highway, you'll be able to drive quite some time before you even have to think about refueling.

Incidentally, the car gets better mileage in the city because it uses the electric motor more with that type of driving.

The 2005 Honda Civic Hybrid falls under the Ultra Low-Emission Vehicle (ULEV) category, which isn't too shabby either. A ULEV is about 50 percent cleaner than the average new 2005 model year car.

And while plenty of 2005 cars fall under this category, they don't match Civic Hybrid's gas mileage of 48 mpg in the city and 47 mpg on the highway. A Civic Hybrid is about 30 percent more fuel efficient than a conventional, gas-powered Civic.

As for the Honda Insight, this little two-seater is the most fuel-efficient car in the country. Its gas mileage is an impressive 61 mpg in the city and 66 mpg on the highway. Its automatic model, which comes with a continuously variable transmission, has been certified as a SULEV vehicle.

What to ask before you buy a hybrid
Still, as good as these cars may be for the environment, consider the long-term impact on your wallet. Here are some financial questions even the most stringent environmentalist should consider before purchasing a hybrid.

Can you and your family afford to spend an extra $3,000 to $4,000 upfront on a new car?

How long do you plan to keep the car? The resale value of a used hybrid is a big question. It's possible you could take another financial hit when you sell a hybrid. If you're not prepared to keep a hybrid for the long haul, think twice about purchasing one.

Can you afford the repairs? A key concern for long-term hybrid owners is maintenance costs. If you keep a car beyond warranty, you'll be stuck with the repair bills and they could get expensive.

"At some point the batteries are going to have to be replaced and they're expensive," says Larry Webster, a technical editor at Car and Driver. "The cost could be anywhere from $1,000 to $2,000."

The hybrid parts in a Toyota Prius, including batteries, are covered by an eight-year, 100,000-mile warranty. Honda covers its hybrid systems with an eight-year, 80,000-mile warranty. So in your ninth year as a car owner, you'll be on the hook for any hybrid repairs in addition to the car's ordinary maintenance costs.

Intrigued by hybrid cars but not sure if you can afford one? This hybrid-car decision maker from Bankrate.com will help tell you.