Vehicles Purchased or Placed in Service in 2006

The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. 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.

Who can Claim the Tax Credit

The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.

Cars that Qualify for 2006 Hybrid / AFV Tax Credit

These models have been certified for the credit in the following amounts:
† This reflects a decrease in the credit amount as of Oct. 1, 2006, due to the manufacturers meeting quarterly sales of 60,000 qualified hybrid cars — See Quarterly Sales, below.

Model Year 2007

Chevrolet Silverado 2WD Hybrid Pickup Truck	$250		Honda Accord Hybrid AT	$1,300
Chevrolet Silverado 4WD Hybrid Pickup Truck	$650		Honda Accord Hybrid Navi   AT	$1,300
Ford Escape Hybrid 2WD	$2,600		Honda Civic Hybrid CVT	$2,100
Ford Escape Hybrid 4WD	$1,950		Honda Civic Hybrid GX	$4,000
GMC Sierra 2WD Hybrid Pickup Truck	$250		Lexus GS 450h	$775†
GMC Sierra 4WD Hybrid Pickup Truck	$650		Lexus RX 400h 2WD and   4WD	$1,100†
Toyota Camry Hybrid	$1,300†		Mercury Mariner 4WD   Hybrid	$1,950
Toyota Prius	$1,575†		Saturn Vue Green Line	$650
Toyota Highlander Hybrid 2WD and 4WD	$1,300†

Model Year 2006

Chevrolet Silverado 2WD Hybrid Pickup Truck	$250		Honda Insight CVT	$1,450
Chevrolet Silverado 4WD Hybrid Pickup Truck	$650		Lexus RX400h 2WD	$1,100†
Ford Escape Hybrid 2WD	$2,600		Lexus RX400h 4WD	$1,100†
Ford Escape Hybrid 4WD	$1,950		Mercury Mariner Hybrid   4WD	$1,950
GMC Sierra 2WD Hybrid Pickup Truck	$250		Toyota Highlander 2WD   Hybrid	$1,300†
GMC Sierra 4WD Hybrid Pickup Truck	$650		Toyota Highlander 4WD   Hybrid	$1,300†
Honda Accord Hybrid AT w/updated calibration and Navi AT w/updated calibration	$1,300		2006 Honda Accord Hybrid   AT and Navi AT without  updated calibration	$650
Honda Civic Hybrid CVT	$2,100		Toyota Prius	$1,575†

Model Year 2005

Ford Escape 2 WD Hybrid	$2,600		Honda Civic Hybrid MT and   CVT	$1,700
Ford Escape 4 WD Hybrid	$1,950		Honda Insight CVT	$1,450
Honda Accord Hybrid AT and Navi AT	$650		Toyota Prius	$1,575†

Quarterly Sales

Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid or advance lean burn technology. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

For example, "AFV Cars" is a manufacturer of hybrid motor vehicles, but not advanced lean burn technology motor vehicles. "AFV Cars" sells its 60,000th hybrid car on March 31, 2006. * Ms. Smith buys an "AFV Cars" hybrid car on June 30, 2006, and claims the full credit. * Ms. Maple buys an "AFV Cars" hybrid car on Dec. 31, 2006, and claims 50 percent of the credit. * Mr. Grey buys an "AFV Cars" hybrid car on June 30, 2007, and claims 25 percent of the credit. * Mr. Green buys an "AFV Cars" hybrid car on July 1, 2007, and is unable to claim the credit, because the credit has phased out for "AFV Cars" vehicles. Toyota Motor Sales, U.S.A., Inc., has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealiers has reached the 60,000-vehicle limit during the calendar quarter ending June 30, 2006.

Effective Oct. 1, 2006, the tax credit amounts for certified Toyota models were reduced. The models and allowable credits may be found in news releases IR-2006-145, Toyota Hybrids Begins Phaseout on October 1st and IR-2006-154, Additional Toyota and Lexus Vehicles Certified for the Energy Tax Credit. Vehicles.

Vehicles Purchased or Placed in Service 2001 through 2005

In August 2002, the IRS announced that it had certified the first hybrid gas-electric automobile as eligible for the clean-burning fuel deduction, effective 2001. Federal law allowed individuals to claim a deduction for the incremental cost of buying a motor vehicle propelled by a clean-burning fuel. A tax deduction is subtracted from income, thus reducing the amount of adjusted gross income on which the taxpayer is taxed. The deduction is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. More detailed information may be found in the Summary of the Credit for Qualified Hybrid Vehicles.
source irs.gov