According to the American Council for an Energy-Efficient Economy (ACEEE):
Starting Jan. 1, 2006, buyers of some hybrid vehicles can get a hefty tax credit. But the credits vary a lot and some very fuel-efficient vehicles still get no credits at all.In some cases, though, the credits are large enough to almost entirely make up the additional cost of the hybrid vehicle as compared to a non-hybrid. That means any money you save on gas will actually go directly into your pocket.
Previously, some hybrid vehicle purchases have been eligible for tax deductions. The new credits, however, are subtracted directly from the money you owe the IRS. That makes these credits much more valuable than deductions.
The credit is based on emissions of pollutants, the car's fuel economy compared to a "similar 2002 vehicle," and how much overall gas the car saves over its lifetime (at least 1,200 gallons is the key). Based on those criteria, here are the vehicles to buy in 2006, with savings estimated by the ACEEE:
Toyota Prius (hybrid): You get $3,150 off your federal taxes, at least until 60,000 of the cars are sold in 2006. You also get around 40 miles per gallon (MPG) in the city based on what I've experienced driving a Prius the past two years.
Ford Escape SUV (hybrid) or Mercury Mariner SUV (hybrid): You save $2,600 credit for the front-wheel drive version or $1,950 for one with four-wheel drive. These SUVs reportedly get in the mid-30s MPG in the city.
Honda Civic (hybrid): You get $2,100 for the automatic version and $1,700 for the manual back from Uncle Sam. The Civic reportedly gets close to 50 MPG in the city.
Honda Insight (hybrid): You receive a $1,450 tax credit for the automatic transmission version. The Insight is considered the most fuel efficient vehicle currently sold in the USA, at nearly 60 MPG in the city.
Honda Civic GX (natural gas): If you live in California, you can save $3,600 off your taxes for buying this car. This car gets an estimated 30 MPG in the city. Time to move to San Diego? Hmmmm....
Lexus RX 400h SUV (hybrid): You get $2,200 back for this baby. You also get about 31 MPG in the city.
Toyota Highlander SUV (hybrid): You get $2,600 for the two-wheel drive and $2,200 for the four-wheel drive version. You also get in the low 30s MPG in the city.
More hybrids (Toyota Camry, Nissan Altima, Lexus GS 450h, Chevy Tahoe/Yukon) that receive tax credits are listed as "upcoming." For the complete list, click here.
Why aren't any diesels listed here, even diesel-electric hybrids? According to the ACEEE:
No diesel vehicle will achieve credits at the outset, because automakers have yet to produce vehicles clean enough to meet those emissions requirements. This situation may begin to change in model year 2007, because ultra-low-sulfur diesel fuel will become widely available in late 2006, facilitating emissions reduction technologies for new diesel models.
Still, even given the program's limitations (note to government - expand and accelerate these tax credits ASAP!):
The program will increase the variety of classes and makes of hybrids available to consumers. Heavy-duty hybrids will also be eligible for substantial credits, a potentially critical factor for the commercialization of these vehicles.
Overall, these tax credits are great news, although too little in my opinion if we're serious about: a) getting off of imported oil from unstable parts of the world; and b) cutting our greenhouse gas emissions before global warming melts the ice caps. Still, according to the ACEEE, "[i]n combination with sustained high fuel prices... [the new tax credits] could ensure the continued boom in hybrid sales." Not bad for your pocketbook, and not bad for the environment. Happy car shopping in '06!