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