Hybrid Tax Credit

Today's tax question comes from G. Coppel. He asks, "I purchased a 2006 Toyota Highlander Hybrid in January 2006. I understand there is a new tax credit for 2006 for hybrids. Do you know how much I can qualify for and will I also be able to use the $500 tax deduction that remains from the 2005 legislation regarding the purchase of Hybrid vehicles? Thank you."

The hybrid tax credit is a brand new tax credit for 2006. To qualify for this credit, you must purchase a qualifying hybrid car or truck in 2006. The old clean fuel deduction is for hybrid cars and trucks purchased in 2005.

Since you bought your Toyota Highlander Hybrid in January 2006, you would qualify for the new tax credit, but you do not qualify for the old tax deduction.

The Internal Revenue Service has not certified any hybrid vehicles as qualifying for the new tax credit. However, engineers and policy analysts have estimated which models would qualify under the Energy Policy Act of 2005, Section 1341. According to the American Council for an Energy-Efficient Economy, the hybrid version of the 2006 Toyota Highlander would be eligible for a tax credit of $2,200 (for the 4-wheel-drive model) or $2,600 (for the 2-wheel-drive model). These are estimates only and cannot be relied upon when preparing your tax return. The IRS will certify individual makes and models of hybrid vehicles later this year, after car manufacturers submit detailed reports concerning each model's fuel economy and energy efficiency. Also, car manufacturers will be required to issue you written documentation stating the maximum dollar value of your tax credit. The requirements for this written documentation was recently set forth by IRS guidance. The information provided on the documentation is spelled out in my article: Essential Information about the Alternative Motor Vehicle Credit.

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