Leave it to the federal government to make the tax benefits of buying a hybrid vehicle extremely confusing.  Several years ago, the IRS initiated the “clean-burning fuel deduction” as a one-time, $2000 adjustment to income (here and here).  This hybrid vehicle tax deduction remained in effect through 2005, as summarized in this Internal Revenue Service release.

The Energy Policy Act of 2005 changed the rules for hybrid car tax breaks beginning in Tax Year 2006 (the Act also provided some tax benefits to those who made their homes more efficient).  No longer considered tax deductions, the new law outlined “tax credits” for taxpayers who purchased or leased hybrid vehicles or alternative motor vehicles.  The maximum credit allowed was $3,400 and you can read an overview of the initial phase out rules here.  Read more...

When asked, many people cite increased fuel efficiency and reduced emissions as their main incentives for buying a hybrid car or SUV.  In reality though, a hybrid vehicle’s safety rating seems like a far more important consideration.  While government safety requirements and technology improvements continue to make the cars we drive and the roads we travel safer, the fact remains that tens of thousands of people are killed or injured in automobile accidents every year.  Read more...