The amount of credit you'll get for the purchase of your new, eco-friendly driving machine
changes depending on how many cars a manufacturer sells. So, the longer you wait the less credit
you'll receive. How does the IRS
schedule this out?
One important point to understand
is that new hybrid owners will get the full credit amount available before the vehicle manufacture
sells its 60,000th qualified hybrid car. After the company sells 60,000 vehicles, however, the credit
amount starts to diminish
according to a quarterly schedule. Here's where the quarters fall on the calendar:
- First quarter: Jan. 1 through March 31
- Second quarter: April 1 through June 30
- Third quarter: July 1 through Sept. 30
- Fourth quarter: Oct. 1 through Dec. 31
Taxpayers can claim the full tax credit up to the end of the first calendar quarter after the quarter within which the manufacturer sells its 60,000th qualified hybrid. This sounds a little tricky (and it is), so here's an example. Let's say a car manufacturer sells its 60,000th hybrid vehicle on March 23 of any year. This falls in that year's first quarter. Shortly afterward, you decide to buy a model of this particular hybrid -- let's say two weeks later, on April 6. Your purchase date falls within that year's second quarter. Even though this is the second quarter of the year, you still qualify for the full tax credit since it's the quarter after the quarter in which hybrid number 60,000 was sold off the lot.
Once you hit the third quarter, however, the credit starts to phase out. If you had waited until the third or fourth quarter to buy the vehicle, between July 1 and December 31, you would only be eligible for 50 percent of the full credit amount. If the tax credit began at $3,000, for instance, you'd get only $1,500. Beginning at the fourth calendar quarter after the 60,000-vehicle mark, the credit decreases again to just 25 percent of the full amount. The credit ends completely starting with the sixth calendar quarter. So, with this schedule, you essentially get a year and a half to claim some kind of tax credit.
To claim this credit, you have to fill out Form 8910 and attach it to your tax return, which you can view and print in PDF format at the IRS Web site. Aside from federal tax incentives, it's also worth noting that state and local governments may offer tax credits or deductions for hybrid vehicles, so don't forget to check other appropriate Web sites for additional details.
For more information about the hybrid tax credit and fuel-efficient vehicles, follow the links below.
Related HowStuffWorks Articles
- FuelEconomy.gov. "New Energy Tax Credit for Hybrids." Feb. 11, 2009. (March 16, 2009)http://www.fueleconomy.gov/Feg/tax_hybrid.shtml
- Internal Revenue Service. "Alternative Motor Vehicle Credit." Oct. 3, 2008. (March 16, 2009) http://www.irs.gov/newsroom/article/0,,id=157632,00.html
- Internal Revenue Service. "Summary of the Credit for Qualified Hybrid Vehicles." Nov. 8, 2007. (March 16, 2009) http://www.irs.gov/newsroom/article/0,,id=157557,00.html
- Mello, Tara Baukus. "The Real Costs of Owning a Hybrid Car: Do Savings Offsetthe Higher Price?" Edmunds.com. July 23, 2008. (March 16, 2009) http://www.edmunds.com/advice/hybridcars/articles/103708/article.html