Hybrid Vehicle Tax Credit
A hybrid vehicle is an automobile that uses electrical power coupled with a gasoline engine to produce a more fuel efficient power plant. The Hybrid Vehicle Tax Credit was designed to encourage the sales of these vehicles.
As part of the Energy Policy Act of 2005, hybrid vehicles along with energy efficient home improvements and solar energy were made eligible for substantial tax credits. Tax credits are especially valuable as they directly reduce the amount of tax owed rather than reduce the taxable amount as is the case with deductions. These tax credits are a prime example of the use of tax credits to encourage activities deemed to be in the best interest of the public. The Hybrid Vehicle Tax Credit is the common name for the part of the Energy Policy Act dealing with hybrid vehicles.
The importance of reducing the dependence of the United States on fossil fuels was the prime motivation for a generous tax credit for hybrid vehicles. The credit varied from qualified vehicle to qualified vehicle. In some cases, the credit reached as high as $3500 dollars. The hybrid vehicles tend to be a bit expensive and there is still not wide spread acceptance of the technology, so the generous credit was intended to spur sales. The IRS set the amount for each qualified vehicle.
The credit had a unique phase out method. The credit was intended to spur sales of 60,000 vehicles of each various qualified type. When the sales figure reached 60,000 for any individual model, the phase out began. In the quarter after the mark had been reached, the credit remained at 100%. In the 2nd and 3rd quarters after the mark had been reached, the credit dropped to 50%. In the 4th and 5th quarters after the mark had been reached, the credit dropped to 25%. After the 5th quarter, it ended completely.
The Hybrid Vehicle Tax Credit has had its intended impact on the sales and even the development of alternative energy vehicles. Some of the models have reached the 60,000 sales mark and are phasing out. The Internal Revenue maintains the list of eligible vehicles and there status and the amount of the credit. The tax payer needs to check this information closely when making a buying decision and when filing for the credit itself.
This tax credit falls into that rare win/win situation. Soaring gas prices have made Hybrid vehicles popular and the increasing environmental awareness of the Green movement in the United States has contributed to the popularity as well. Any additional cost of these quality vehicles would be reduced by savings at the gas pumps, the tax credit is merely a nice bonus thoughtfully thrown in.