Tax Breaks for Green Cars

In the eyes of Uncle Sam, not all eco-friendly cars are equal. Find out how much money you're allowed to write off on your tax return.

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Best Values in Clean CarsSLIDE SHOW: Earth-Friendly Autos ScorecardThe Simple Solution: Gas Sippers

The Toyota Prius used to top the tax credit list, but Congress in its inscrutable wisdom limited the full credit for hybrids to the first 60,000 vehicles sold by a manufacturer. In the phaseout of the break, credits for Toyota and Lexus hybrids have been halved and halved again. If you buy a Prius before October 1, 2007, you'll be eligible for a $787.50 credit. After that, you get nothing. Honda hybrid credits will be halved after December 31, 2007. For a complete list of credits, go to the Department of Energy's fueleconomy.gov Web site.

The Honda GX, which runs on compressed natural gas, is eligible for a $4,000 tax credit, and you may be eligible for another $1,000 off if you buy a home gas dispenser. The credit for electric vehicles expired at the end of 2006.

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When it's time to do your federal income taxes, you calculate the credit on Form 8910 and enter it on line 55c of Form 1040. Unfortunately, the credits don't count against the alternative minimum tax, but the energy bill moving through Congress would change that for 2007.

Mark Solheim
Mark Solheim
Former Editor, Kiplinger Personal Finance

Mark was the editor of Kiplinger's Personal Finance magazine from July 2017 to June 2023. Prior to becoming editor, he was the Money and Living sections editor and, before that, the automotive writer. He has also been editor of Kiplinger.com as well as the magazine's managing editor, assistant managing editor and chief copy editor. Mark has also served as president of the Washington Automotive Press Association. In 1990 he was nominated for a National Magazine Award. Mark earned a B.A. from University of Virginia and an M.A. in Writing from Johns Hopkins University. Mark lives in Washington, D.C., with his wife, and they spend as much time as possible in their Glen Arbor, Mich., vacation home.