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Tax Credit for Hybrid Cars

written by: •edited by: Laurie Patsalides•updated: 6/27/2011

Part of the government's economic stimulus package is offering hybrid car tax credits if you purchase an energy efficient car. Here, Jean Scheid takes a look at tax credit for hybrids and how they work.

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    What Vehicles Qualify?

    Hybrid Car by Mundoo The hybrid car tax credit for alternative fuel-powered cars applies to vehicles that achieve a 25% or higher fuel efficiency rate than conventional gasoline vehicles and the car must have been purchased prior to January 1, 2006. A good resource that lists tax credits for hybrids can be found at

    The amount of the tax credit depends on the model you buy. If you can afford the new Tesla Roadster at $109,000, you can get a $7,500 tax credit. In addition, some states are offering additional tax incentives on top of the federal credit. To find out if your state offers tax credits for hybrid cars, call your state's Revenue Department. The pricey Cadillac Escalade can be yours for $73,500 and comes with a $2,200 tax credit.

    There are more affordable models like the Honda Civic that ranges from $12,800 to $24,000 depending on model and offers a $4,000 tax credit. The Chevrolet Silverado pick-up with a price tag of $38,000 comes with a $2,200 tax credit, and the Volkswagen Jetta models start at $23,400 and have a $1,300 tax incentive. Gone are the days where you only had one or two model options. Hybrid vehicles are being manufactured for families, truck people, and everyone in between.

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    How it Works

    In an effort to reduce our dependence on gas, the US government found that by extending these hybrid tax incentives, consumers would be more likely to purchase a hybrid car. With all government laws come exceptions; including these hybrid car tax credits. Once the manufacturer of the model you want produces 60,000 units, the tax credit no longer applies. If you are interested in purchasing a vehicle that appears on the Edumunds list, you can visit a dealership and ask if they have any models that qualify. When a auto dealer receives a hybrid and its invoiced, the invoice will state whether the vehicle is eligible.

    Hybrids that have already passed the 60,000 unit exception include Toyotas and Lexus models. The Ford Fusion and Mercury Milan have the most time left in the 60,000 unit time frame.

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    Earn a Hybrid Tax Credit

    You can also earn a hybrid or alternative fuel tax credit by installing conversion kits to your vehicle. The conversion kits can be installed by qualified mechanics and you can find more information on how they work by contacting the Roush company; a leader in conversion kits.

    The hybrid car tax credit, whether you buy a new vehicle or convert your current vehicle, are only good for the initial owner. If you trade-in or sell your hybrid car, the tax credit doesn't travel to the new owner. Further, if you find a used hybrid on the dealer's lot, that won't qualify either.

    It's best to contact a tax professional before you invest in a hybrid car to find out if leasing versus purchasing will gain you further tax incentives. With more people concerned about our environment, the tax credit for hybrid cars is a great way to get more fuel efficient vehicles on the road.