No announcement yet.

Hybrid Car Tax Deduction 2005 / Credit 2006

This is a sticky topic.
  • Filter
  • Time
  • Show
Clear All
new posts

    Hybrid Car Tax Deduction 2005 / Credit 2006

    <b>Hybrid Car Tax Deductions For 2005</b>

    If you purchased and began driving a hybrid vehicle during this year (2005), you will be allowed to claim a one-time deduction of $2,000 on your 2005 tax return. Because this is a tax deduction and not a tax credit, what this tax deduction ultimately saves you will vary depending on your income. The result for most people, however, will be savings of somewhere between $300 and $600 when the deduction is taken.

    The following hybrid model cars have been approved by the IRS for the clean-fuel vehicle tax deduction:

    <a href="">Lexus RX 400h Hybrid</a> Model Year 2006
    <a href="">Ford Escape Hybrid</a> Model Year 2005 and 2006
    <a href="">Toyota Prius Hybrid</a> Model Years 2001 through 2005
    <a href="">Toyota Highlander Hybrid</a> Model Year 2006
    <a href="">Honda Insight Hybrid</a> Model Years 2000 through 2005
    <a href="">Honda Civic Hybrid</a> Model Years 2003 and 2005
    <a href="">Honda Accord Hybrid</a> Model Year 2005
    <a href="">Mercury Mariner Hybrid</a>: Model Year 2006

    <script type="text/javascript">google_ad_client = "pub-8949118578199171";google_ad_width = 728;google_ad_height = 90;google_ad_format = "728x90_as";google_ad_channel ="";google_color_border = "EAEAEA";google_color_bg = "EAEAEA";google_color_link = "4271B5";google_color_url = "99CC66";google_color_text = "000000";</script>
    <center><script type="text/javascript"src=""></script></center>

    To claim the tax deduction, it's not necessary to itemize your taxes. All you need to do is claim it as an adjustment to your income on the regular 1040 form (you are not able to claim this deduction if you file with any of the shorter IRS forms). You may claim the deduction by writing "Clean-Fuel" and the deduction amount on the dotted line to the left of line 35 of the 1040 form.

    This tax deduction is limited to new hybrid vehicles (if you bought your hybrid second hand, you do not qualify for this tax deduction), but you can go back as far as 2000 if you haven't already taken the deduction.

    As mentioned before, the tax deduction is a one-time deal so if you made a claim on your hybrid vehicle in a previous year, you can't do it again this year.

    There are a number of states which are also offering tax breaks. It's worth taking the time to see if your state offers an additional tax break for hybrid vehicles. For example, Colorado offers tax credits of approximately $3,000 on some hybrid car models.

    Congress originally had written the law so that the hybrid vehicle tax deduction would decrease to $500 in 2006, but instead they introduced a hybrid vehicle tax credit for 2006. This tax credit is most likely worth more than the 2005 tax deduction.

    <b>Hybrid Car Tax Credits 2006</b>

    The energy bill which was signed into law in August 2005 abolished the tax deduction and replaced it with a tax credit for hybrid vehicles that met certain conditions. This credit will be available to hybrid vehicles that are put into use after January 1, 2006. These tax credits are more valuable to most taxpayers than the 2005 tax deductions due to being a tax credit rather than a deduction.

    The difference between the tax credit and tax deduction comes from where the money is taken out in the tax return. Tax deductions are taken out before the actual tax dollars owed are calculated meaning each dollar is only worth the percentage rate of your taxes. A tax credit, however, is a direct reduction of taxable income meaning it is worth 100% of the amount.

    The formula to calculate the tax credit is quite complicated and involves several steps. It involves calculating the the hybrid vehicle's fuel economy and its total expected lifetime fuel savings to establish the tax credit it'll receive. Since the information on the 2006 models is not currently available, the American Council for an Energy Efficient Economy (ACEEE) has made estimates of what the credit will be. These estimates are likely to change when the government releases the exact credits for each hybrid vehicle.

    <a href="">Ford Escape Hybrid (2wd)</a>: $2,600
    <a href="">Ford Escape Hybrid (4wd)</a>: $1,950
    <a href="">Honda Accord Hybrid</a>: $650
    <a href="">Honda Civic Hybrid (auto)</a>: $2,100
    <a href="">Honda Civic Hybrid (manual)</a>: $1,700
    <a href="">Honda Insight (auto)</a>: $2,600
    <a href="">Honda Insight (manual)</a>: $0
    <a href="">Lexus RX400h</a>: $2,200
    <a href="">Toyota Highlander Hybrid (2wd)</a>: $2,600
    <a href="">Toyota Highlander Hybrid (4wd)</a>: $2,200
    <a href="">Toyota Prius Hybrid</a>: $3,150
    <a href="">Mercury Mariner Hybrid</a>: $1,950

    Upcoming Models (based on estimated specs)

    <a href="">Cheverolet Malibu Hybrid</a>: $0
    <a href="">Chevrolet/GMC Silverado/Sierra (2wd)</a>: $250
    <a href="">Chevrolet/GMC Silverado/Sierra (4wd)</a>: $650
    <a href="">Chevrolet/GMC Silverado/Sierra '08</a>: $900
    <a href="">Chevrolet/GMC Tahoe/Yukon</a>: $1,800
    <a href="">Lexus GS450h Hybrid</a>: $1,300
    <a href="">Nissan Altima Hybrid</a>: $1,300
    <a href="">Toyota Camry Hybrid</a>: $1,300
    <a href="">Saturn VUE Hybrid</a>: $0

    The tax credit beginning in January 2006 isn't a year long tax credit, but a tax credit based on the number of vehicles each manufacturer sells. The full tax credit is available for the first 60,000 hybrids vehicles each manufacturer sells. Once 60,000 hybrid vehicles are sold by a manufacturer, the tax credit will be phased out over a 15-month period.