What Tax Credits Are Available for Hybrid Cars?

by Amrita Chuasiriporn

Hybrid cars bridge the gap between the conventional vehicle fuel source of gasoline, and the alternative fuel source of electricity. To incentivize the purchase of these vehicles, all levels of government in the U.S. have begun to offer tax credits for hybrid cars. These offers vary by your location, so make sure to check with your locality for the most current information on available tax credits.


The federal government offers tax credits for hybrid vehicles purchased and/or first used between December 31, 2005 and December 31, 2010. Hybrid vehicles purchased and/or first used after December 31, 2010 will no longer be eligible to receive any federal tax credit. These tax credits are issued based in part on the vehicle's fuel economy and weight, and max out at $3,400. However, you should know that these tax credits also are based on how many hybrid vehicles any given auto manufacturer has sold in the U.S. in total. After each manufacturer hits 60,000 hybrid vehicles sold, the tax credit is phased out entirely. Furthermore, as each manufacturer gets closer to that magic number, the amount of the tax credit for that company's vehicles goes down. For example, as of September 2010, Toyota, Lexus, Ford, and Honda vehicles are no longer eligible for federal hybrid vehicle tax credits, due to sales of hybrid vehicles in excess of 60,000 in the U.S.


Many states offer tax credits for both business and personal purchase of hybrid vehicles, including California, New York, Oregon and Pennsylvania. These tax credits are in addition to and independent of any tax credits that the federal government may issue for your hybrid vehicle. Like the federal government's program, your hybrid vehicle must meet certain qualifications determined by each state in order to receive a tax credit. You should also note that in some cases, a hybrid vehicle that is no longer eligible for a federal tax credit may still be eligible for a state tax credit. Check with your state government to see what hybrid vehicle tax credits are currently available to you, or consult the Hybrid Center: State and Federal Hybrid Incentives website for more information. Also note that several states have bills that are in the process of passing through state governments that may affect hybrid tax credits in those states. If your state is one of these, read up on the bill and express your concern to your elected officials. Without your voice, they cannot know what you want when they are representing you.

Local Credits and Additional Information

Towns such as Williamstown, Massachussetts and Austin, Texas offer varying tax credits and rebates for residents who purchase hybrid vehicles. As with federal and state tax incentive programs, certain qualifications must be met in order for owners to receive those credits. Hybrid owners throughout the U.S. also may wish to know that tax credits at all levels of government are not the only incentives available for hybrid vehicle owners. Some states and towns also offer money-saving perks such as free parking and use of high-occupancy vehicle (called HOV in literature) lanes regardless of the number of vehicle occupants. These incentives may not be as great initially as tax credits, but saving a little money over time still means you save money.

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