Friday, September 21, 2007

Hybrid Cars Prices and its Tax and Credit

Prices are dropping and most still have tax incentives. Now, however, federal tax incentives can cover much of the cost difference.

Tax credits running out

Once a given manufacturer sells more than 60,000 credit-eligible vehicles, tax credits for that company's vehicles start being reduced and ultimately eliminated.

Toyota is now offering rebates and discounts to make up for lost tax credits.

For example, because Toyota is past the sales limit, the tax credit for purchasing a Prius has dropped to $1,575, from $3,150 in September 2006. Factoring in the tax credit, a Toyota Camry Hybrid purchased now should cost about $23,118, according to Edmunds True Market Value. Prices for other hybrid vehicles are falling as well, but not as fast. Tax incentives for those vehicles, like the Ford Escape and Mercury Mariner Hybrid, remain high, however.

Some state and local governments also offer tax incentives to purchasers of hybrid vehicles.

In addition, some corporations, such as Bank of America, offer cash incentives for employees who purchase hybrid vehicles. Some insurance companies, such as Travelers and Farmers Insurance Group, offer discounts to drivers of hybrid vehicles.

Prices likely to rise

Hybrid prices probably aren't going to stay low for long, though, Rosten told

Either through errors or tricky rules, not all hybrid buyers will get the tax credit they had expected.

If you bought a Toyota Prius last summer you may have thought you were entitled to a $3,150 tax credit.

Following a story we published Friday about the cost-effectiveness of purchasing a hybrid vehicle, received an email from one reader who filled out the wrong form - she mistakenly asked for an electric vehicle tax deduction - and thought she was entitled only to a $1,000 tax credit, not the $3,150 credit she was actually supposed to receive.

She's now filing an amended tax return.

If a family's taxes, figured the old-fashioned way, come in below the AMT amount, they have to pay the higher AMT.

But the tax was never indexed for inflation since its 1970 inception. In that case, you're only allowed to claim as much of the tax credit as you can without reducing the taxes you pay below the AMT amount.

At tax time, Bob finds that for his income he's paying less in taxes than the AMT mandates, so he must pay the AMT. Bob gets no hybrid tax credit for his Prius.

Jane doesn't have to pay the AMT, either. But her taxes are just $1,500 more than she would have had to pay under AMT. Finally, if you bought a Toyota hybrid vehicle last year, the date you purchased the vehicle will influence how much your tax credit is.

Just in case you missed this detail: Because Toyota sold more than 60,000 hybrid vehicles last year, tax credits for those vehicles began phasing out after September. Also, the tax credits do not apply to leased vehicles and only apply to vehicles purchased new, not used.

Summarized by WS from


Anonymous said...

Both Toyota and Lexus have sold their 60,000 cars and the tax credit has been phased out. with more and more different hybrids out there many more people would be able to benefit from the tax credit.

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