Additional Hybrid Vehicle Tax Credit Information
Additional Hybrid Vehicle Tax Credit Information
This information applies to hybrid passenger vehicles purchased before the end of 2010.
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1. Hybrid vehicle tax credit amount
Auto manufacturers calculate the tax credit for qualifying hybrid and diesel models and submit certifications on qualifying models, including the credit amount, to the IRS.
If you really want to know how the credit is calculated, read on – it’s complicated. For cars and light trucks (SUV's, minivans, and pickup trucks up to 8,500 pounds) the tax credit is the sum of a “fuel economy credit” and a “conservation credit,” both of which depend on the vehicle’s fuel economy compared to the baseline “2002 model year city fuel economy” of a vehicle in the same weight class.
The fuel economy credit depends on the improvement of the fuel economy over the baseline. The credit is as follows, based on the vehicle fuel economy as a percentage of the baseline fuel economy:
| Percent of Baseline | Credit Amount |
| 125 to 150 percent | $400 |
| 150 to 175 percent | $800 |
| 175 to 200 percent | $1,200 |
| 200 to 225 percent | $1,600 |
| 225 to 250 percent | $2,000 |
| 250 percent or more | $2,400 |
The conservation credit depends on the estimated lifetime fuel savings, expressed in gallons of gasoline. The credit is:
| Fuel Savings (gallons) | Credit Amount |
| 1,200 to 1,800 | $250 |
| 1,800 to 2,400 | $500 |
| 2,400 to 3,000 | $750 |
| 3,000 or more | $1,000 |
Fuel savings are calculated as (120,000 miles divided by baseline mpg) minus (120,000 miles divided by vehicle mpg).
2. Phase-out of the hybrid tax credit
Once a manufacturer has sold 60,000 hybrid and/or diesel vehicles that qualify for the tax credit, the credit amount for vehicles made by that company is phased out according to the following schedule:
| Calendar Quarter | Percentage of Full Credit |
| When sales reach 60,000 | 100 percent |
| 1st quarter after | 100 percent |
| 2nd quarter | 50 percent |
| 3rd quarter | 50 percent |
| 4th quarter | 25 percent |
| 5th quarter | 25 percent |
| 6th quarter and beyond | No credit |
Purchasers of Toyota or Lexus hybrid vehicles are no longer eligible for any tax credit, as a result of Toyota having sold 60,000 qualified hybrid cars and SUV’s as of October 1, 2006.
Tax credits for Honda hybrids were completely phased out on January 1, 2009.
Tax credits for Ford and Mercury hybrids were completely phased out on April 1, 2010.
The hybrid and diesel tax credits expire for all cars and light trucks on December 31, 2010, whether or not the manufacturer has sold 60,000 vehicles or reached the end of the phase-out period. Auto manufacturers must report their sales to the IRS quarterly and should change the certification they provide to buyers as the amount of the credit diminishes.
3. 2005 tax deduction for hybrid vehicles
The new tax credit for hybrid vehicles is available only for vehicles placed in service starting January 1, 2006, but buyers who purchased hybrids before that date are eligible for an older tax deduction. Individuals and businesses that bought new hybrid vehicles in 2005 can claim a tax deduction of $2,000.
For tax year 2005, that deduction applies to these models: Toyota Prius, Toyota Highlander Hybrid, Honda Insight, Honda Civic Hybrid, Honda Accord Hybrid, Ford Escape Hybrid, or Lexus RX 400h.
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