- Bargaineering - http://www.bargaineering.com/articles -

2006 Hybrid Tax Breaks – New Rules

A little over a year ago I wrote about the tax breaks for tree hugging autos [3] and this time I’m here to update that article with the tax breaks for 2006. The Energy Policy Act of 2005 updated various energy related tax break laws, such as deductions for energy saving home improvements [4], and one of those things was to change how the tax breaks on clean fuel vehicles worked. The differences are significant and outlined below.

Here are some of the certification amounts, straight from the IRS.
Toyota Prius (05, 06) – $3150
Toyota Highlander Hybrid (06) – $2600 (2WD & 4WD)
Lexus RX400h (06) – $2200 (2WD & 4WD)
Toyota Camry Hybrid (07) – $2600
Lexus GS 450h (07) – $1550
Ford Escape Hybrid, Mercury Mariner Hybrid – $1950 4WD
Ford Escape Hybrid FWD – $2600

If your hybrid isn’t listed, it just means that the manufacturer hasn’t followed the procedures yet to get the cars certified as a clean fuel vehicle eligible for a tax credit. It takes some time, the ones listed above were all certified within the last month.

Some major changes to note:
1. It’s a tax credit now, not a tax deduction (i.e. it’s better). You get the amount of the credit off your tax bill.
2. You get the percentage of the deduction based on when you buy the eligible vehicle with respect to how many of those vehicles the manufacturer has sold. Before the manufacturer sells 60,000 vehicles, buyers get 100% of the deduction. After the manufacturer has sold 60,000 cars, that quarter and the next you get 100%. The next two (2nd, 3rd) will only give you 50% of the credit. For the fourth and fifth, only 25%, and none after that.
3. It’s an above the line credit, so you get this regardless of whether you claim the standard deduction or itemize.

Info from the IRS:
Prius, Highlander, RX2005 [5]. Camry Hybrid, Lexus GS 450h [6]. Ford Escape, Mercury Mariner [7].