This latest CNN article on the tax breaks California residents can get on plug-in hybrids surprised the heck out of me – you could get a Nissan Leaf ($32,5000) for only $17,000 after federal, state, and local tax credits. The federal government would offer a $7500 tax credit, California would offer a $5,000 rebate, and San Joaquin Valley offers $3,000 in rebates.

That made me wonder where other vehicles stood in the whole tax incentive world, to which I turned to FuelEconomy.gov. They break down the credits into five categories – diesels, hybrids, plug-in hybrids, electric vehicles, and alternative fuel vehicles. We’ve taken a look at these in the past but I thought they deserved another look.

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After last week’s Thursday post on adjusting your tax withholding, I thought that we needed a full blown post on the best year end tax moves. So who better to turn to than prolific tax expert Kay Bell, author of The Truth About Paying Fewer Taxes? She was kind enough to list not one, not two, but nine tax moves you can make before the ball drops.

It’s time to make your year-end tax list and check it twice to ensure that you give yourself the gift of tax-savings. Here are 9 ways this month to help make your 2009 tax bill as small as possible.

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I’m surprised it took this long for someone to produce a list of the top ten cars in price per miles per gallon but Consumer Reports finally came through. We all know that hybrid vehicles are great fuel efficient cars but we also know that there is a waiting list for the Prius, hybrid vehicles are expensive (with many of the hybrid vehicle tax breaks expiring), and take nearly a decade to break-even on gas prices. It turns out that the most fuel efficient car, dollar for dollar in price, is the manual transmission Honda Fit Sport at $464 per MPG, edging out its base-model non-sport sibling and the base Toyota Prius.

Here are some thoughts I had about the list:

• If you’re trying to do any break-even comparisons between cars, you can use this list to help you. Look for a pricier car with a higher MPG and you can calculate the break-even versus a cheaper car. For example, the $23,780 Toyota Prius with 44 MPG will catch up to the Mazda3i ($17,290, 30 MPG) in terms of base cost + fuel when the odometer hits ~152,978 miles at $4/gallon gasoline. That’s a lot of miles huh?
• Four Hondas are on the list, including the Fit and Fit Sport taking the top spot. Three Toyotas (Scion is a subsidiary of Toyota) are on the list along with a Hyundai, Nissan, and the lone “American” car the Mazda3 (Mazda has Japanese origins but is now a Ford brand, hence the quotes).
• I’m surprised to see only three manual vehicles on the list because manuals often get great fuel mileage and because manual transmissions vehicles are usually cheaper than the automatic ones, usually resulting in lower vehicle costs. A great frugal tip on cars is that you can save a few hundred dollars to a grand on a car if you buy a manual.
• I’m not surprised to see that these are all small vehicles (you could argue that the Fit is smaller than small).
• The difference between #1 (Honda Fit Sport) and #10 (Scion tC) in price per MPG is pretty significant – $194 per MPG.

Full table after the jump.

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The Energy Act of 2005 ushered in new tax credits for the purchase of hybrid cars and light trucks, offering up to $3400 in tax credits for qualifying vehicles purchased after December 31st, 2005 (the act expires in 2010). A credit would be set for each vehicle and, once 60,000 were sold, the credit would be phased out. Once the cap is met, the full tax credit is available for purchases in that quarter and the following quarter. Then, the credit is reduced to 50% for two quarters, then to 25% of the credit for two quarters. Then it’s reduced to zero.

Since the 60,000 count is on all hybrid vehicles, rather than a running count on model, the limit applies to manufacturers. Here’s where all the auto manufacturers stand with respect to that limit according to the IRS (in order of estimated vehicles sold).

• Toyota: (0% Credit) – Six months after the act was enacted, Toyota met it’s 60,000 vehicle cap and the credit is no longer available. [IRS announcement]
• Honda: (50% Credit) – Honda is currently in the 50% credit phase through June 2008. On Feb 22nd, the IRS announced that Honda met it’s 60,000 vehicle cap in the fourth quarter of 2007. That sets the expiration schedule at 50% credit through June 2008 and 25% credit from July 2008 through December 2008. The credit expires at the end of the 2008 calendar year. [IRS announcement]
• Ford: (100% credit) – As of August 6th, 2007, Ford has sold 33,547 hybrid vehicles, no additional IRS guidance has been released on their sales since. [IRS announcement]
• General Motors: (100% credit) – As of March 31th, 2007, GM has sold 8,485 hybrid vehicles, no additional IRS guidance has been released on their sales since. [IRS announcement]
• Nissan: (100% Credit) – As of August 6th, 2007, Nissan has sold 7,849 hybrid vehicles, no additional IRS guidance has been released on their sales since. [IRS announcement]

Additional Resources

• IRS News Releases: If you want to keep up with the most recent IRS releases regarding hybrid vehicles, keep your eye on this list of releases. They generally report new certifications of vehicles and any sales figures.
• Phaseout & Credit Information: Fueleconomy.gov has a useful dynamic table that lists the phaseout and credit information for each vehicle.

On October 20th, the Internal Revenue Service announced that the 2005 Ford Escape Hybrids were added to the list of vehicles eligible for the hybrid tax credit specified in the Energy Policy Act of 2005. The two vehicles added were the 2005 model year versions of the Ford Escape, previously only the 2006 model years were eligible. The two cars are:

• Ford Escape 2 WD Hybrid (2005) – $2,600
• Ford Escape 4 WD Hybrid (2005) – $1,950

For more information on how the tax break works, I wrote about the 2006 Hybrid Tax Break rules back on April 27th.

Here is the full list of eligible vehicles and their tax credit amounts after the jump.
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Why haven’t you bought a hybrid vehicle yet? Do you hate Mother Earth? Or were you concerned that hybrid technology is so new that if you bought a hybrid and it broke down, you’d be stuck always going to the overpriced dealer for repairs? What about the lifespan of the hybrid batteries? Well, on the first count you’d be right… working on it will require special training. As for the battery life, you shouldn’t worry because Toyota and Ford both claim to have vehicles that have batteries that have lasted over 100,000 miles, some Toyota vehicles have made it past 200,000 miles.

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Toyota reported that in May it sold its 60,000th energy efficient vehicle and so the tax credit on Lexuses and Priuses (and other Toyota vehicles eligible for the credit) will be reduced to 50% on all cars sold in October. That means instead of a nice fat $3,150 check for buying a Toyota Prius, Uncle Sam will only give you $1,575 back. Bummer. If you wait until next April, you only get a quarter of the original tax credit – $787.50. If you wait until October 2007, you will get no credit.

None of the other auto manufacturers have hit the limit yet so you still have time to snatch up a Civic Hybrid.

…the law limited that tax credit to the first 60,000 vehicles that a manufacturer produces. After a manufacturer hits that limit, the full credit is available only through the next quarter. The credit then shrinks to half its value for six months and shrinks again to one-quarter for another six months before disappearing.

If you’re interested, I’ve written up a list of the tax credits for each vehicle.

via Baltimore Sun.

You might be familiar with the recent changes to the hybrid vehicle tax credits but did you know that Bank of America is rolling out a pilot program to over 21,000 employees where they’ll give employees $3,000 if they buy a hybrid and live within 90 miles of Charlotte, Boston or Los Angeles? That’s pretty nice! If you bought a Prius, you would get $3150 back from Uncle Sam and then another $2,250 (assuming you’re in the 25% bracket and BoA’s $3000 gift is considered regular income) for a total of $5,400 off your bill!

Bank of America is not the only company offering incentives to employees buying hybrid vehicles. The Los Angeles Times reports that although the bank’s program could become the largest in terms of workers eligible, the rebate is smaller than those offered to employees by three California firms: Google (Research) and software developer Hyperion Solutions (Research), which the paper reports both offer $5,000 for purchases; and privately-held Integrated Archive Systems, which the Times reports has a $10,000 rebate plan.

via CNN Money.

A little over a year ago I wrote about the tax breaks for tree hugging autos 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, 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. Camry Hybrid, Lexus GS 450h. Ford Escape, Mercury Mariner.

Consumerism Commentary has an article about the $10,000 hybrids that Honda is planning to roll out in 2007 and wonders aloud if it’s worth it to switch from a 2004 clunker getting 30 miles per gallon to a sleek 2007 clunker getting 60 or 70 miles per gallon. It depends.

At $2.50 a gallon, a 30 mpg car pays 8.3 cents per mile driven. If you consider that the average car drives approximately 12,000 miles a year, that puts the total gasoline price at $1,000 a year. For a 60 mpg car, the total cost of gasoline is $500, a difference of $500 (not $1,000 as I erroneously wrote here before) So at $2.50/gal, the car would pay for itself (initial cost, not including taxes, titles, etc.) in twenty years. At $5/gal gasoline, that’s in ten years.

So is it worth the change? Probably, but it depends in part on how much you would “lose” if you sold the car in 2007 and bought the $10k hybrid. It also depends on whether the hybrid tax breaks are still around by the time these cars roll off the factory floor. You can also add in all sorts of other financial calculations like the interest earned on money not spent on gas, etc. but if a $10k hybrid car exist that performed well enough (I’ve never driven or rode in a hybrid car) then I’d switch in a heartbeat.

[Edited because my math skills are weak, must be all those MBA classes I've been sitting through.]