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Green light ’07 credits for hybrid cars

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in Small Business Tax

If you’re in the market for an energy-efficient car at year-end, don’t forget about the income tax implications.

Advice: When you buy a hybrid vehicle certified by the IRS, you’re entitled to a tax credit, depending on the make and model. But the credit for certain vehicles is being reduced. In one case, it no longer is available as of Oct. 1.

On the other hand, you can still claim the full credit on your 2007 return for other models purchased before Jan. 1.

Starting point: Under the Energy Policy Act of 2005, you can claim a tax credit—a dollar-fordollar reduction of your tax bill—for qualified vehicles placed in service after 2005 and before 2011. This “alternative motor vehicle credit” is a combination of the following four credits:
  • The qualified fuel cell motor vehicle credit.

  • The advanced lean burning technology vehicle credit.

  • The qualified hybrid motor vehicle credit.

  • The qualified alternative fuel vehicle credit.
The hybrid motor vehicle credit is the one that appeals to most consumers. The IRS bases the credit on the fuel economy for a particular weight class.

Caution flag: The credit begins to phase out in the second calendar quarter after the calendar quarter in which at least 60,000 of the manufacturer’s qualified passenger automobiles and light trucks have been sold. At that point, the credit for all hybrid models produced by that automaker are first reduced by 50% for a six-month period, then by 75% for the following six-month period. After that, the credits disappear for good. See the chart for the updated figures.

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