Tax Credit for Qualified Hybrid Vehicles

The Energy Policy Act of 2005 provides a tax credit for taxpayers who purchase certain energy efficient vehicles, including Qualified Hybrid vehicles.

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A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer's tax obligation.

The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006. IRS Notice 2006-9 provides procedures for manufacturers to certify to the Internal Revenue Service that certain vehicles qualify for the credit and the amount of the credit.

Generally, for a passenger car or light truck that is a qualified hybrid vehicle, a taxpayer may rely on the manufacturer's certification that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies.

Even though a manufacturer has certified a vehicle, a taxpayer must meet the following requirements to qualify for the credit:

1. The vehicle must be placed in service after 12-31-05 and purchased on or before 12/31/10.
2. The original use of the vehicle must begin with the taxpayer claiming the credit
3. The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle
4. The vehicle must be acquired for use or lease by the taxpayer claiming the credit
5. The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
6. 
   
   
   For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.
7. The vehicle must be used predominantly within the United States

As of August 9 2006 , the Internal Revenue Service had acknowledged the manufacturers’ certifications of the following qualified hybrid vehicles and credit amounts (additional vehicles may subsequently be acknowledged):

Model Year 2007

• Chevrolet Silverado 2WD Hybrid Pickup Truck - $250
• Chevrolet Silverado 4WD Hybrid Pickup Truck - $650
• Ford Escape Hybrid 2WD - $2,600
• Ford Escape Hybrid 4WD - $1,950
• GMC Sierra 2WD Hybrid Pickup Truck - $250
• GMC Sierra 4WD Hybrid Pickup Truck - $650
• Lexus GS 450h - $1,550
• Mercury Mariner 4WD Hybrid - $1,950
• Saturn Vue Green Line - $650
• Toyota Camry Hybrid - $2,600

Model Year 2006

• Chevrolet Silverado 4WD Hybrid Pickup Truck - $650
• Ford Escape Hybrid (Front) 2WD - $2,600
• Ford Escape Hybrid 4WD - $1,950
• GMC Sierra 2WD Hybrid Pickup Truck - $250
• GMC Sierra 4WD Hybrid Pickup Truck - $650
• Honda Accord Hybrid AT w/updated calibration and Navi AT w/updated calibration - $1,300*
• Honda Civic Hybrid CVT - $2,100
• Honda Insight CVT - $1,450
• Lexus RX400h 2WD - $2,200
• Lexus RX400h 4WD - $2,200
• Mercury Mariner Hybrid 4WD - $1,950
• Toyota Highlander 2WD Hybrid - $2,600
• Toyota Highlander 4WD Hybrid - $2,600
• Toyota Prius - $3,150
• *2006 Honda Accord Hybrid AT and Navi AT without updated calibration qualify for a credit of $650.

Model Year 2005

• Honda Accord Hybrid AT and Navi AT - $650
• Honda Civic Hybrid MT and CVT - $1,700
• Honda Insight CVT - $1,450
• Toyota Prius - $3,150

Form 8910, Alternative Motor Vehicle Credit, is used to claim the qualified hybrid vehicle credit as well as for vehicles qualifying for other provisions of the alternative motor vehicle credit. For additional information on the proper reporting of the alternative motor vehicle credit, see the instructions to Form 8910 on page two of the form.

If the qualifying hybrid vehicle is purchased for business use, the credit for the business use of a qualifying hybrid vehicle is reported on Form 3800, General Business Credit.

For qualifying hybrid vehicles acquired for personal use, the credit is reported on the appropriate line of the taxpayer's Form 1040, U.S. Individual Income Tax Return.

The new qualified hybrid motor vehicle credit begins to phase out in the second calendar quarter after the calendar quarter in which at least 60,000 of the manufacturer's qualifying passenger automobiles and light trucks have been sold. Notice 2006-9 requires manufacturers who have received acknowledgement of certification to submit a report to the IRS of the number of qualified vehicles sold to a retail dealer during the calendar quarter. For this purpose, qualified vehicles are any passenger automobile or light truck that is a new, advanced lean burn technology motor vehicle or a qualified hybrid motor vehicle. After review of the quarterly reports, the IRS will issue an acknowledgement letter to the vehicle manufacturer stating whether purchasers may continue to rely on the certification.

The deduction allowable for certain hybrid vehicles under IRC Section 179A is no longer available for vehicles placed in service after December 31, 2005.

If the Internal Revenue Service publishes an announcement that the certification for any specific vehicle has been withdrawn, taxpayers cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement.