|Popular hybrid credits gone, but others remain
|By Kay Bell
After reaching historic highs in the summer of 2008, gasoline prices have settled in at at just under $2 a gallon. But many motorists don't believe prices will stay that low for long. Those folks are looking to trade in their gas guzzlers for models that are much friendlier to the environment and, if gas prices climb again, their bank accounts.
Unfortunately, though, there is no longer any tax value in buying the most popular hybrid vehicles. Provisions in the law that created the credit for buyers of fuel-efficient vehicles mean that manufacturers -- and their customers -- must pay a tax price for being the favorites.
In 2007, Toyota became the first car maker to face the tax credit phaseouts, which are mandated when an automaker sells a certain number of its gas-saving vehicles. The sales of the Prius model alone quickly pushed the Japanese carmaker into the no-credit zone.
Honda hybrids were hot on Toyota's heels. The credit for that manufacturer's energy-saving autos began was reduced in 2008, and this Jan. 1, 2009, tax credits for purchases of Honda hybrids also disappeared.
Essentially, the most popular hybrids, which usually are the most
fuel-efficient, lost their associated tax break more quickly
than poorer-selling makes and models. The Energy Policy Act of 2005,
which established a new tax credit system to reward purchasers of
IRS-approved hybrids, mandated the tax benefit's reduction once
a carmaker sells its 60,000th hybrid.
It seems counterintuitive, but Congress included the
legislative limit to help out American automakers, who are substantially
behind their Japanese counterparts when it comes to hybrid technology.
The hope was that once the credit is gone, energy- and tax-conscious
drivers would opt for other models that are less efficient, but
still afford some tax savings.
Toyota hit the 60,000 sales mark in June 2006 and
the phaseout schedule meant the end of the credit for any of its
hybrid vehicles, including those bearing its luxury Lexus nameplate,
on Oct. 1, 2007. Before it was eliminated, buyers could claim a
reduced credit on their tax returns depending on when they bought
Honda purchasers started dealing with similar reduced-credit
calculations at the beginning of 2008. When that year began, all
Honda hybrid credits were cut in half for purchases made in the
subsequent six months. Then, the credit amounts were reduced again
to 25 percent of each Honda hybrid's original amount for six months.
Finally, on Jan 1, 2009, buyers of a Honda hybrid weren't able to
claim any tax credit for their new car.
The dates and credit amounts are confusing, especially since they are applied to each automaker separately. And that's just one of several components of the rather convoluted law.
But if you bought one of the autos, you need to make
note of them because they determine your tax break when you file
your 2008 return. Individuals who amend a previous filing to claim
the credit also need to know their precise hybrid purchase date
to make those changes.
Below are the basics hybrid car shoppers should know.
|Tax credit for autos: |
That forces the car companies and their customers
into a bit of a guessing game. They have to keep their eyes on sales
reports and calendars, as well as on the IRS's "OK" list,
to make sure they get the biggest possible tax break or don't lose
the tax savings entirely.
|Eligible hybrid vehicles by manufacturer:||
and counting down
The credit countdown starts when a manufacturer sells 60,000 of the fuel-efficient vehicles. The tax break then is reduced over five subsequent calendar quarters after that 60,001st hybrid hits the road.
So although the credit technically is available through 2010, Toyota and Honda can no longer tout the tax benefit when marketing its vehicles.
Meanwhile, other automakers whose hybrids aren't as hot could conceivably use the tax credit as a sales promotion all the way up to Jan. 1, 2011.
the most popular hybrid models, which also provide the most tax savings, have
the shortest credit life.
The credit-cut clock started ticking in June 2006
for Toyota, the acknowledged leader, primarily due to the popularity of its Prius