Federal tax credit phase out period ~ Hybrid Car Review
Hybrid Car Review: Federal tax credit phase out period

Thursday, May 11, 2006

Federal tax credit phase out period

Buyers of hybrid cars are eligible for a federal tax credit in 2006 of up to $3400. But the full tax credit is only available up until the quarter following the time the manufacturer of the hybrid car sells 60,000 hybrid cars.

Intended as a domestic tax incentive, federal lawmakers are currently discussing dropping this cap. And considering Toyota will most likely hit that cap number sometime in the 2nd Quarter of 2006, it would probably work as a domestic incentive if left alone. In the meantime, Toyota has set up a website outlining some basic hybrid car tax credit information you need to know if you have already bought, or are considering buying a hybrid.

The really nice feature of this page is their outline on how the tax credit will phase out after the 2nd Quarter.

Since Toyota expects to hit the cap number some time during the second quarter of this year (they've already sold over 50,000 hybrid cars this year), the full tax credit will begin to phase out in the third quarter, i.e. after September 30, 2006. After that, consumers will be eligible for 50% of the tax credit for two more quarters, followed by 25% for the two quarters after that. And so, on September 30, 2007, there will be no federal tax available on Toyota hybrid cars.

Honda and Ford have sold arond 13K and 7K hybrid cars so far this year. Considering their rate of sales, those who purchase from Honda and Ford/Mercury will be eligible for the full tax credit well into next year.

Keep in mind that some states give tax relief as well. For instance, Colorado offers a tax credit (until 2011) based on the vehicle similar to the federal tax credit and Connecticett offers a full sales tax exemption on buyers who purchase hybrid cars (expires July 1, 2008).

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