Tax Credit Where Credit is Due

The 2007 Toyota Prius

If you are the proud new owner of a hybrid or diesel for personal, business or trade use you may qualify for an IRS tax credit of up to $3,400.

The Toyota Prius, Honda Insight, Honda Civic Hybrid, Honda Accord Hybrid, Ford Escape Hybrid, Mercury Mariner Hybrid, Chevrolet Silverado Hybrid, GMC Sierra Hybrid, Lexus RX 400h, and Toyota Highlander Hybrid are among the cars qualified for the tax credit which was a provision of the Energy Policy Act of 2005. That legislation became effective in January of 2006 and could apply to vehicles purchased until 2010 or until each manufacturer uses up its allotted eligible vehicles.

The specific credit for each individual vehicle is calculated based on fuel economy and a “conservation credit” for heavier vehicles which makes their tax breaks more competitive.

Both hybrids and diesels are eligible for the credit if they meet emission certifications. All hybrids already meet these qualifications but if any diesels qualify from the 2007 model year they will be the first to do so and that will be because they utilize ultra-low sulfur diesel fuel.

Leasing a qualifying vehicle does not earn you the tax credit although the owner of the car you are leasing does benefit. And of course only the original buyer of the car is eligible for the credit.

Each manufacturer is allotted 60,000 eligible cars and Toyota has already used up their limit. That means the credit for their vehicles has begun the process of being phased out. Eligible Toyota and Lexus vehicles bought after September 30th, 2006 have their tax credit cut in half. Those same vehicles purchased after March 31, 2007 will only yield 25% of their original credit. If you want to buy a Toyota or Lexus and collect a tax you need make your purchase by September 30th of 2007. That’s when these credits run out completely for Toyota.

For more information about how to apply for the credit visit:

For up to date information check out this US Department of Energy publication:

Additional information on both the tax credits and deductions is available on the EPA’s fuel economy website.

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