New Energy Tax Credits For Hybrids

We all know, and have been told a thousand times, how hybrid cars are the future. In times full of information and media stories making us all aware of the impact we may have on the environment, most motorists have become aware that their car is a major contributing factor to their carbon footprint. Hybrid cars have been sung out by industry and environmental experts as a genuine way of combating the problem; while no one promises they can eliminate carbon emissions in vehicles entirely, hybrids are certainly a workable compromise. Some brands, such as the Toyota Prius, have gained almost cult status.

So, while we are all aware that hybrid cars can benefit the environment, it is also important to note that they may be able to benefit your wallet also. At present, the US Government is running a tax credits scheme, whereby if you buy a hybrid car you will be eligible for a reduction of up to $3,400 in the cost of your income tax.

The scheme is not a catch all, and like any Government initiative it has its limits. The first is in terms of timing; if you purchased a hybrid car before December 31st 2005, you will not be eligible for the income tax reduction. However, there is a further scheme to balance the fairness of this. If you do have an older hybrid, you may be eligible for a $2,000 so-called "clean fuel" reduction. This can be done by filling in form 1040X, which is an amended tax return for the year you purchased the car.

Returning to the new vehicle purchase, numerous cars and manufacturers are covered. The reduction can be as large as $3,400. The Toyota Prius ranks the highest in terms of discounts, if bought in 2006 - again, you will need to submit an amended tax return for the time of purchase. It is worth noting that any Toyota Prius bought prior to 2007 is no longer eligible for the scheme, so if buying new, choose another make or model. Other makes and models are subject to sliding discounts, depending on their efficacy at cutting carbon emissions - check the Government website or with a dealership to find out how much you could save.

To apply for your discount, you will need to fill in the appropriate section of your 1040 Individual Tax Return form. You will need to fill in an additional form, the 8910, with details of your purchase, and submit these together. Forms can be obtained online or from a local tax office; it may also be worth speaking to your accountant, if you have one.

Other restrictions apply. The car must be for use in the United Stares, have been acquired for personal use (and not immediate resale) and that the original use of the vehicle begins with the tax payer - you cannot buy a second hand hybrid and claim the credit, essentially.

The scheme is to be phased out in at the end of December 2010, so if you have been considering purchasing a hybrid, there could not be a better time. The applications to obtain credits from vehicles purchased before 2006 - the clean fuel credit - will also expire on this date, so there is no time like the present!

By: Levi Quinn

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