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.
In true IRS fashion, more than 40 updates and notices on hybrid vehicle tax credits have been released since the Energy Policy Act of ‘05. If you’d like to review each one, all can be found at this frequently updated url. Since the main focus of this article is hybrid suv tax breaks, here’s what you need to know if you purchased or plan to purchase a 2008 model year hybrid sport utility.
2008 Chevrolet Tahoe hybrid tax credit (2WD & 4WD): $2,200
2008 GMC Yukon hybrid tax credit: $2,200
2008 Ford Escape hybrid tax credit (2WD): $3,000
2008 Ford Escape hybrid tax credit (4WD): $2,200
2008 Mazda Tribute hybrid tax credit (2WD): $3,000
2008 Mazda Tribute hybrid tax credit (4WD): $2,200
2008 Mercury Mariner hybrid tax credit (2WD): $3,000
2008 Mercury Mariner hybrid tax credit (4WD): $2,200
2008 Saturn Vue Green Line tax credit: $1,550
2008 Toyota Highlander hybrid tax credit: $0 (expired)
2008 Lexus 400h tax credit: $0 (expired)
The above listed tax credits are from this IRS notice, updated on 01/02/08. Credits are only available for those who purchase a new hybrid vehicle, not a used hybrid. Alternative Minimum Tax (AMT) laws could have an impact on whether or not you qualify for this tax break, and the law governing the tax benefit is set to expire in 2010. We do however expect an updated release on the following hybrid SUV’s by year end:
2009 Cadillac Escalade hybrid tax credit:
2009 Dodge Durango hybrid tax credit:
2009 Chrysler Aspen hybrid tax credit:
2009 Saturn Vue Two-Mode hybrid tax credit:
Additional information can be found on the Hybrid Tax Credits website (hybridtaxcredits.com). Information provided in this article should not be mistaken as tax advice. Always consult with a qualified tax advisor on these kinds of tax issues.
Lastly, now seems like the perfect time for congress to get on the ball and pass some real tax relief (possibly in the form of a hybrid tax rebate program) for those who are shelling out the extra dollars to buy green cars and SUVs. Some states are already ahead of the feds in considering state tax exemptions and other incentives for alternative fuel vehicles. It’s too bad something couldn’t have been done in conjunction with the economic-stimulus plan, possibly providing a stimulus voucher that could have been used to purchase vehicles with minimum EPA MPG ratings.
