Hybrid credit gone for Toyota, fading fast for Honda

In June 2006, Toyota sold its 60,000th hybrid. That included not only the Prius, coveted by celebrities and not-so-famous drivers alike, but also versions of the automaker's Camry, Highlander and luxury Lexus models.

In total, 13 Toyota/Lexus hybrids were credit-certified. And under the credit guidelines, the tax break phased out for all of those vehicles, not just the popular Prius.

In effect, earlier buyers of hybrids tend to receive the greater tax rewards. That's particularly true once a manufacturer hits the 60,000 sales mark. The longer you wait, the more your credit is reduced, until it disappears entirely.

This table shows what various buyers of a Prius, which had an original credit of $3,150, faced as they bought their particular autos at different times.

Tax credit events and deadlines for Toyota Prius buyers
DateEventAvailable credit
Jan. 1, 2006Tax credit becomes available for Prius hybrids purchased on and after this date -- through Dec. 31, 2010.$3,150
June 2006Toyota sells a total of 60,000 hybrids -- all models.$3,150
July 1, 2006 through Sept. 30, 2006 (first quarter after sales target reached)Prius purchased during this period are still eligible for full credit.$3,150
Oct. 1, 2006 through March 31, 2007 (second and third quarters after sales target reached)Prius purchased during this period are eligible for 50 percent of original credit.$1,575
April 1, 2007 through Sept. 30, 2007 (fourth and fifth quarters after sales target reached)Prius purchased during this period are eligible for 25 percent of original credit.$787.50
Oct. 1, 2007 and beyondNo tax credit allowed for Prius purchases.$0

And while the table uses the Prius' dollar amounts, the percentage limits apply to all Toyota or Lexus hybrids bought during the five post-60,000-sales quarters. (In other words, dollar amounts vary with the model.)

Now Honda buyers will have to do similar phaseout math on their 2008 returns for any purchase made this year. The original, full-credit amounts for the 15 eligible Honda vehicles still apply for 2007 purchases and tax filings, but the tax breaks for each of the carmaker's hybrids were cut in half for the first six months of this year. The next phaseout level (25 percent of the original credit) will kicked in July 1 and run through Dec. 31.

When 2008 ends, so do the credits for all Honda hybrids.

Some things are constant
Although the various credit amounts are different for each make and model and change depending on overall manufacturer sales, there are a couple of constants when it comes to the alternative fuel/hybrid vehicle credit.

First, to get the credit you have to do more than sign a purchase contract. The IRS requires that the vehicle "be placed in service." That means the date you drive it off the dealer lot determines your credit amount.


Secondly, the only taxpayer who can claim the credit is the vehicle's original owner. And the qualifying auto must be new; the credit does not apply to a used hybrid.

Finally, while the credit can help you reduce your tax bill, it has its limits. It is a nonrefundable credit and its name means just that. It can help you zero out your tax bill, but it won't get you a check from Uncle Sam.

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