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Get Your Hybrid Car Tax Credit — While They Last

A hybrid car will most certainly cut your gas bill — and if you bought one last year, it could also shave down your tax bill.

New hybrid owners shouldn’t forget about the so-called alternative motor vehicle credit when filing your tax returns (you’ve only got a week left!). If you bought a new hybrid in ‘07, you may qualify for a tax credit worth as much as $3,000, according to the IRS, depending on what make and model of hybrid you purchased – and when you bought it.

Tax credits shouldn’t be confused with tax deductions. Credits are more valuable because they cut your actual tax bill, dollar for dollar, while deductions reduce your taxable income.

For the list of credit-eligible hybrids in 2007, click here. In order to qualify, you need to be the original purchaser of a new hybrid; used cars don’t apply. And if you’re leasing, you’re also out of luck. The credit is only available to the leasing company, the IRS says.

These credits won’t last forever. Once a new manufacturer sells 60,000 hybrids, the government begins phasing out the tax break. Take the Toyota Prius. If you purchased one between April and September of last year, you’re eligible for a $787.50 credit (down from $3,150 for 2006 buyers), while it disappears completely for people that bought after Oct. 1. The full credit for qualifying Honda hybrids is available for all 2007 purchases, but it’s being reduced this year.

If you’re in the market for a green set of wheels, check out this chart to see what’s tax-credit worthy in ‘08.

–Tara Siegel Bernard

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