Target Market For Hybrid Tax Credits

Automakers like Ford©, Toyota©, and Honda© aim their hybrid vehicle marketing toward early adopters.  These consumers are not only swayed by fuel savings and reduced emissions with hybrid vehicles, but want tax incentives to reduce their financial burdens.  Early adopters tend to purchase hybrid cars, trucks, and SUVs as primary vehicles rather than novelties phased into day-to-day use over time.  As states and the Federal Government create more sophisticated hybrid credits, early adopters will benefit from parking, utility rebates, and other credits on hybrid vehicles. 

Hybrid tax credits also attract families, long-range commuters, and small businesses to green vehicles.  The federal tax credit allows families to reduce the overall burdens of buying the Toyota Prius®, the Honda Insight®, and other hybrid vehicles.  Families can couple their hybrid tax credits with credits for education, home ownership, and farm lands to lessen their taxable income.  As commuters move further away from industrial parks and downtown businesses, hybrid cars offer reduced fuel costs with the same reliability as traditional vehicles.  Commuters can keep their jobs, save money on gas, and reduce their tax burden with hybrid tax credits.  State and federal hybrid tax credits promote fleet sales among small businesses that are looking to update delivery vehicles. 


Federal Hybrid Tax Credits

The Energy Policy Act of 2005 initiated a series of tax credits applied to hybrid vehicles that use 25% less fuel than their traditional counterparts.  This tax credit on "advanced vehicles" ranged from $250 to $3,400 with different credit levels based on projected fuel mileage.  For every 25% improvement in fuel mileage compared to a gas equivalent, the IRS allows a $400 increase in the hybrid tax credit.  The 2005 law set the end date for these tax credits at December 31, 2010, though the law also ramped down credits based on total sales.  The full credit was applied to the first 60,000 hybrid vehicles sold by applicable automakers.  After the initial 60,000 units were sold, hybrid drivers could apply 50% of the credit on their taxes the first two quarters after this benchmark and 25% of the credit the next two quarters.

Honda© and Toyota© reached their 60,000-unit benchmarks within months of the passage of the Energy Policy Act of 2005.  These automakers benefited from a minimum tax credit of $1,700 compared to the regular $250 minimum credit for other vehicles.  The Ford Fusion Hybrid® and the Mercury Milan Hybrid® are still applicable for the $3,400 tax credit until April 4th, 2010.  The Energy Policy Act of 2005 has been amended to decrease the tax credit to $1,700 for vehicles purchased before October 1st, 2009 and $850 before April 1st, 2010. 

Congress has also approved tax credits for plug-in hybrid and electric vehicles as part of the American Recovery and Reinvestment Act of 2009.  The federal plug-in credit ranges from $2,500 to $7,500 with a reduction in credits after 200,000 plug-ins are sold.  The Federal Government has placed more stringent restrictions on plug-in tax credits in order to separate hybrids from plug-in vehicles.  The federal plug-in tax credit only applies to new purchases with plug-in equipment, batteries producing at least 4 kilowatts, four or more wheels, and a curb weight less than 14,000 pounds. 

State Hybrid Tax Credits

Hybrid vehicle owners need not restrict their search for tax credits to their federal income tax returns.  State legislators have been working since the Energy Policy Act of 2005 to compound the benefits of hybrid ownership with state tax credits.  In addition to helping taxpayers reduce their taxable income in a given year, states are also interested in attracting automakers and parts manufacturers with ties to the hybrid vehicle industry.  States from California to Maine have been debating hybrid tax credits and other benefits for years with a few notable examples currently in state statutes. 

The state of Colorado offers one of the most substantial tax credits for hybrid vehicle purchases by residents.  State residents could claim nearly $6,000 in tax credits for purchasing Super Ultra Low Emissions Vehicles (SULEVs) in Colorado prior to January 1st, 2010.  The state offers reduced credits for Ultra Low Emissions Vehicles (ULEVs) and Low Emissions Vehicles (LEVs) as determined by the Federal Government.  Colorado started using verifiable emissions and fuel mileage statistics to determine tax credits after January 1st, 2010. 

States like Florida, Louisiana, and Pennsylvania are dipping their toes more carefully into hybrid tax credits.  The state of Florida has limited its $5,000 tax rebate on hybrid vehicle purchases to 100 taxpayers with a growing waiting list for more taxpayers.  The Louisiana state legislature passed a $3,000 tax credit in September 2009 for hybrid vehicle conversions.  Pennsylvania created a $500 tax credit for hybrid vehicle purchases and leases with the potential for an expanded credit in upcoming years. 

Online Resources For Hybrid Tax Credits

Prospective hybrid owners should peruse online sources to stay updated on hybrid tax credits at the state and federal level.  FuelEconomy.gov (http://www.fueleconomy.gov) is a website maintained by the Environmental Protection Agency (EPA) and the Department of Energy (DOE).  This Federal Government clearinghouse offers mileage, MSRP, and performance information on all hybrids currently sold in the United States.  FuelEconomy.gov maintains tax credit and mileage information as it changes, which makes it beneficial for consumers about to purchase hybrid vehicles. 

For a greater perspective on hybrid tax credits at the state and federal level, consumers can go to Hybridcenter.org (http://www.hybridcenter.org) for tax credit data.  This website is maintained by the Union of Concerned Scientists© and features a list of local, state, and federal hybrid credits.  Hybridcenter.org goes beyond tax credits currently on the books with proposals, bills, and lapsed legislation on hybrid vehicle incentives throughout the United States.  The Union of Concerned Scientists© offers myriad information to educate the public including a time line of hybrid development, vehicle comparison tools, and articles on hybrid vehicle ownership.  This website is ideal for hybrid novices who need some background on green vehicles before delving into the complexities of hybrid tax credits.