Explanation Of Hybrid Car Tax Credit

Many people have purchased the popular Hybrid vehicles that have been out on the market for several years. In 2005 a law was passed to allow tax credits for these purchases, but there are key restrictions. The law that enabled you to caim this Hybrid Car Tax Credit is The Energy Policy Act of 2005. Getting this tax credit is not as simple as it may sound though, there is some information you need to know if you are planning on taking the tax credit. This information includes the actual amount you will get for your Hybrid Car Tax Credit, and the order you must take your tax credits before taking the Hybrid Car Tax Credit.

In an IRS document, which was last updated on November 8th of 2007, there are details about the Hybrid Car Tax Credit. The maximum Hybrid Car Tax Credit that you can receive according to this document for the purchase of a vehicle is $3,000. The Hybrid Car Tax Credit is only available for the purchaser of a new, qualifying hybrid vehicle according to the document. It is not available to purchasers of used vehicles. The Hybrid Car Tax Credit will expire after 2010.

Here is an interesting little piece of information provided in the IRS document though. After a specific manufacturer sells 60,000 qualifying hybrid vehicles, then the tax credit starts to phase out for vehicles sold by this manufacturer. The actual amount of the credit you can claim depends on the status of the phase out for your manufacturer. For instance, if someone purchased a 2008 Ford Excape Hybrid 2 WD last year they are eligible for a $3,000 tax credit. Yet, if they purchased a 2007 Honda Civic CVT they can only claim a $2,100 credit. It is even lower for a 2007 Chevrolet Silverado 2WD Hybrid Pickup Truck at $250 for the Hybrid Car Tax Credit.

Don't count your tax credit yet though. If you have other tax credits that you take, there is a specific order in which you must take your Hybrid Car Tax Credit according to an article from About.com. There is a list of ten different tax credits that you must take if you qualify for them before you take the Hybrid Car Tax Credit according to the article. Some of the more popular of these tax credits include the Child tax credit, Hope and Lifetime Learning tax credits, Child and dependent car tax credit, and the Electric vehicle credit. There are also six other tax credits that you must take before taking this credit. The other kicker is that you can not reduce your tax liability below zero.

So, either when doing your own taxes or especially when having a professional prepare your taxes you must disclose all of the tax credits you are eligible to claim. This will help you or your preparer determine if you are eligible for the Hybrid Car Tax Credit after all of your other credits are accounted for. Keep in mind that many of the tax credits listed ahead of the Hybrid Car Tax Credit in the order to take your credits may be higher than this credit is. So in the end if your tax preparer informs you that you are not eligible for this tax credit, it means that you have reduced your tax obligation to very close to zero due to your other tax credits you were able to claim.

SOURCES:

About.com. "Hybrid Tax Credit Strategies and Limitations".
URL:http://taxes.about.com/od/deductionscredits/a/hybridtaxcredit_2.htm

Internal Revenue Service. "Summary of the Credit for Qualified Hybrid Vehicles".
URL:http://www.irs.gov/newsroom/article/0,,id=157557,00.html