Hybrids in line for tax credit

WASHINGTON — Drivers who want to beat rising gasoline prices by buying hybrid vehicles could save more money if they're patient.

Starting in 2006, people who buy or lease hybrid vehicles — cars or SUVs powered by gasoline and electric engines — will be able to get tax credits of up to $3,400. The credit is a dollar-for-dollar reduction in what you owe in income taxes. It's included in the energy bill President Bush signed into law Aug. 8.

Not all hybrids have been approved for the credit, and how much you'll get back depends on the efficiency of the car and when you buy it. In addition, a cap on how many hybrid purchases qualify and waiting lists for some hybrids mean you'll have to act fast.

The Internal Revenue Service (IRS) has approved seven hybrid vehicles for the tax credit: the Ford Escape, Toyota Highlander, Honda Accord, Honda Civic, Honda Insight, Lexus RX400h and Toyota Prius.

More may qualify as the IRS reviews new hybrids. Chevrolet, Nissan, Dodge and Saturn plan to release hybrids starting in 2007, according to Brad Berman, who runs a Web site with news about hybrid vehicles with the help of the University of Michigan (www.hybridcars.com).

"Generally assume that the vehicles that achieve better gains in fuel efficiency are the ones that are going to be more handsomely benefited by the tax incentives," Berman said.

To get the tax credit you'll have to wait to buy the vehicle until after Jan. 1. If you buy one of the first 60,000 qualifying vehicles that your automaker sells or buy one in the first three months after the quarter in which that sales total is reached, you'll get the maximum rebate allowed for that vehicle. After that, the tax credit starts to phase out.

Information

For more information on hybrids and fuel economy, go to the Department of Energy site: www.fueleconomy.gov/feg/tax_hybrid.shtml.The site will be updated with more details on the hybrid tax credit.

The IRS will determine later this year how much of a tax credit you can claim for each hybrid model. The amount will be based on how much more fuel efficient the car is than a 2002 nonhybrid in the same weight class. Efficiency will be based on the Environmental Protection Agency's (EPA) estimate of savings over 120,000 miles.

The Toyota Prius — which the EPA rates the most fuel-efficient car on the market at 61 miles per gallon — will get you the biggest tax credit, $3,100, says the American Council for an Energy Efficient Economy, a nonprofit group that advocates energy conservation. Therese Langer, the group's transportation-program manager, said it was possible that a new hybrid or improvements in current ones could qualify for the full $3,400 rebate.

Berman said fears over having to replace a hybrid's battery — offsetting the value of the tax credit — were "logical but unfounded." Automakers claim that hybrid batteries can last 150,000 to 200,000 miles. A replacement can cost up to $4,000, but most automakers back their batteries for at least eight years or 80,000 miles, whichever comes first.

If you can't wait until next year to buy a hybrid, there's a $2,000 one-time tax deduction you can take now on your purchase. That runs out Dec. 31 and can be claimed on your 2005 tax return.

But the tax credit will save you more: The tax deduction merely reduces your gross income while the tax credit is subtracted from what you owe in taxes.