Hybrid Motor Vehicle Credit

The Energy Tax Incentives Act of 2005 created the new hybrid motor vehicle credit for the purchase of qualified vehicles placed in service after December 31, 2005. Besides being a specific model, the vehicle must be purchased new and cannot be purchased for resale. The amount of the hybrid credit for 2006 can be as low as $250 (e.g., the GMC Sierra 2WD hybrid pickup truck), and as high as $3,150 (e.g., the Toyota Prius). Starting in 2006, once a specific auto manufacturer’s sales of hybrid vehicles reach 60,000, the energy credits for hybrid vehicles purchased from that manufacturer are reduced. Toyota and Lexus exceeded this 60,000 vehicle threshold during the second quarter of 2006. Therefore, for any qualified Toyota or Lexus hybrid vehicle purchased after September 30, 2006, the hybrid credit is reduced. For example, the hybrid credit for the 2006 Toyota Prius is reduced 1) by 50% (from $3,150 to $1,575), if purchased after September 30, 2006, 2) by 75% (from $3,150 to $787.50), if purchased after March 31, 2007, and 3) is eliminated altogether, if purchased after September 30, 2007. All other Hybrids manufactured by Toyota and Lexus (e.g., Highlander Hybrid, Lexus RX400h, Camry Hybrid, Lexus GS 450h) are subject to the same phase-out schedule.

Caution: The hybrid auto tax credit does not reduce your alternative minimum tax (AMT).

 

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