Most gas-electric hybrid cars qualified for federal income tax credits for a few years, but as 2010 ran down, so did the credits. Starting in 2011, only the hybrids that use plug-in electrical outlets to charge their batteries will get credits.
The Energy Policy Act of 2005 made tax credits available for lessees or buyers of new gas-electric hybrid vehicles for the first time. (Tax credits reduce the amount of tax owed, while deductions lower your taxable income.)
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The tax credits for hybrid cars took effect in January 2006. The maximum credit for most hybrids was $3,400. The idea was to encourage people to buy energy-efficient hybrids even though they were more expensive than comparable gas-only vehicles. The credits phased out after a manufacturer sold 60,000 of a hybrid model. All credits end with purchases made by the end of 2010.
Here's how it works. Let's say 60,000 of a hybrid model had been sold by June 30, 2006. Anyone buying one of those hybrids through the next calendar quarter -- ending September 30 -- got the full tax credit. People buying that hybrid in the next two quarters, through March 31, 2007, got half the credit. In the next two quarters after that, a buyer got 25 percent of the credit. After that, the credit was gone.
Toyota hybrids phased out in 2007, and Honda hybrid credits expired early in 2009. Ford reached phase-out early in 2010. As the Dec. 31, 2010, end for all credits neared, only a few hybrids still qualified for the credits. Partial credits were available for some hybrids sold by BMW, Cadillac, Chevrolet, GMC, Mercedes Benz and Nissan. A list is available on the Internal Revenue Service (IRS) Web site [source: IRS].
As 2010 comes to a close, the buzz on tax credits seems to revolve around plug-in hybrids and electric cars, with little chance that credits for gas-electric hybrids would be renewed. The Federal Recovery and Reinvestment Act of 2009 provided stimulus money designed to give plug-in and electric car buyers between $2,500 and $7,500 in federal income tax credits. The larger the battery, the higher the credit. Buyers can get a $2,000 credit for exchanging a hybrid for a plug-in. And many states and municipalities offer incentives such as tax credits, reduced license fees, free parking and rebates for plug-ins and electric cars.
Some analysts question whether credits for gas-electric hybrids are ending too soon [source: Berman]. Consumers don't consider these hybrids so experimental anymore, and the prices have come down as a result. Until plug-ins and electric cars become more familiar and affordable, analysts suggest that continued credits might encourage more people to buy gas-electric and help cut America's dependence on the imported oil that is used to make gasoline.
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