Cash In on Tax Credits for Hybrid Cars

If you’ve been considering buying a hybrid vehicle, a tax credit may help lure you into the showroom. The actual credit varies by vehicle, and the most-popular hybrids—made by Lexus, Honda and Toyota—have already exhausted their available credits.

But if you purchase a Ford Fusion or Mercury Milan hybrid by December 31, you will be eligible for a tax credit of $850. (A tax credit, which reduces your tax bill dollar for dollar, is more valuable than a tax deduction, which merely reduces the amount of your income that is taxed.) If you purchase one of these models between April 1 and September 30, 2009, you’ll qualify for a $1,700 tax credit, and if you bought one of these hybrids during the first quarter of 2009, you can claim the full tax credit, of $3,400, on your 2009 tax return.

The credit is phased out once a manufacturer sells 60,000 hybrid vehicles. Lexus, Toyota and Honda all hit this mark in previous years, so you won’t get a tax credit if you buy one of their hybrids this year. Ford and Mercury hit the 60,000 mark in the last quarter of 2008. That means you will be allowed to claim only 50% of the credit for purchases of their hybrid vehicles in April through September 2009 and 25% of the credit for purchases made in the last quarter of the year.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Full tax credits are still in effect for 2010 hybrid versions of the Nissan Altima ($2,340) and Chevrolet Malibu ($1,550). The full $2,200 credit is available for each of the following 2010 hybrid models: Cadillac Escalade; Chevrolet Silverado and Tahoe; and GMC Sierra and Yukon.

There is no income eligibility limit for claiming the credit, and you can use it even if you are subject to the alternative minimum tax, which normally disallows many credits and deductions permitted under the regular tax rules.