At a series of press conferences in Detroit today, U.S. Treasury Secretary John Snow formally announced the tax policy changes that will give 2006 buyers of hybrid vehicles a tax credit of up to $3,400.

The tax credit was actually part of the Energy Policy Act of 2005, enacted last August, but only vehicles bought after January 1st are eligible. Snow, pictured above with Ford's Mark Fields, also toured the Detroit Auto Show, stopping for the obligatory photo-op at each manufacturer's hybrid vehicle display.

The tax credit calculation is, of course, complicated. (After all, this is the IRS we're talking about.)
The law uses a two-tiered formula that considers both relative fuel economy and the total amount of fuel saved -- a system that favors large vehicles. Fortunately the IRS and the automakers will calculate and certify the allowable tax credit for each qualifying vehicle, so you don't have to. The Mercury Mariner pictured above, for example, qualifies for a $2,600 credit.

There are caveats: you must purchase the vehicle new, and it must be for your personal or business use (not for resale). When you sell the car or truck, you will have to "recapture" part of the original tax credit, depending on how long you owned the vehicle. At this point, it's not at all clear if leased vehicles qualify for the tax credit. (For information about the best strategy for maximizing the benefit of the tax credit, check out this article.)

And the tax credit doesn't go on forever - after a manufacturer has sold 60,000 hybrids, the tax credit begins phasing out, reducing the chance buyers late in the year will get the same break as those who buy in the next month or two


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