Buying a hybrid? Waiting may cost you

By SmartMoney

Hybrid cars made a splash in 2005 when Congress passed legislation that created tax credits aimed at encouraging shoppers to buy new energy-efficient vehicles.

That spurt of publicity helped make hybrids like the Toyota Prius popular. Since then, however, the excitement has died down -- and so have the credits themselves for hybrids made by Toyota and Lexus. Those credits will soon be phased out.

If saving taxes is a big factor in your decision to buy a car, you should consider buying some hybrids sooner rather than later. Another thing to keep in mind is that while credits for some hybrids may be on their way to extinction, there are credits available for other types of energy-efficient vehicles that are just finding their way to car lots. Here's a guide that will get you up to speed on the latest vehicle tax credits.

Credits for hybrid vehicles

Hybrid vehicles combine an internal-combustion engine with a second engine that runs on rechargeable batteries. Tax credits for hybrids can range from as low as $250 to as high as $3,400. At least, that's the theory -- no vehicle has qualified for this upper limit yet. Unless Congress extends them, these hybrid credits will disappear after 2010.

Until then, they can be helpful because they reduce your tax bill dollar for dollar. However, watch out if you're a victim of the dreaded alternative minimum tax -- more on that later.

Beware of phaseout rule

By far, the Toyota Prius is the most popular hybrid. Honda and Lexus have also produced strong sellers in the past couple of years. That popularity, however, has a negative impact on the hybrid tax credits. Once a manufacturer sells more than 60,000 qualifying hybrids, the credits for all hybrid models produced by that automaker are reduced by 50% for a six-month period and then by 75% for the following six-month period. After the end of the second six-month period, the credits disappear.

Due to this phaseout rule, the credits for Toyota and Lexus hybrids purchased between now and the end of September are only 25% of the original amounts. After Sept. 30, there won't be any credits for Toyota or Lexus hybrids.

As for Honda, it appears that credits for its hybrids purchased after Sept. 30 may be reduced to 50% of the original amount, but that's not entirely certain yet. If the tax payoff is a factor in your purchase decision, check the Internal Revenue Service's Web site for updates before visiting a Honda dealer.

Here's a list of the latest IRS-approved tax credits for 2007 and 2008 hybrids. As mentioned, the credits for Toyota and Lexus vehicles will be phased out after September, while credits on Hondas may be reduced at that time. For all other hybrids, it appears that the full credit amounts shown below will probably be available for vehicles purchased through at least the rest of this year.

IRS-approved tax credits for 2007-08:

Toyota and Lexus hybrids	Now through Sept. 30	Later
2007 Toyota Prius	$787	0
2007 Toyota Camry	$650	0
2007 Toyota Highlander two- and four-wheel drive	$650	0
2007 Lexus RX 400h two- and four-wheel drive	$550	0
2007 Lexus GS 450h	$387	0
Honda hybrids	Now through Sept. 30	Later
2007 Honda Accord	$1,300	*
2007 Honda Civic	$2,100	*
Ford and Mercury hybrids	Now through Sept. 30	Later
2007 Ford Escape two-wheel drive	$2,600	*
2007 Ford Escape four-wheel drive	$1,950	*
2007 Mercury Mariner four-wheel drive	$1,950	*
2008 Ford Escape two-wheel drive	$3,000	*
2008 Ford Escape four-wheel drive	$2,200	*
2008 Mercury Mariner two-wheel drive	$3,000	*
2008 Mercury Mariner four-wheel drive	$2,200	*
Mazda hybrids	Now through Sept. 30	Later
2008 Mazda Tribute two-wheel drive	$3,000	*
2008 Mazda Tribute four-wheel drive	$2,200	*
Chevrolet, GMC and Saturn hybrids	Now through Sept. 30	Later
2007 Chevrolet Silverado pickup two-wheel drive	$250	*
2007 Chevrolet Silverado pickup four-wheel drive	$650	*
2007 GMC Sierra pickup two-wheel drive	$250	*
2007 GMC Sierra pickup four-wheel drive	$650	*
2007 Saturn Aura	$1,300	*
2007 Saturn Vue Green Line	$650	*
Nissan hybrid	Now through Sept. 30	Later
2007 Nissan Altima	$2,350	*

*Information not yet available

Credits for alternative-fuel vehicles

Qualified alternative-fuel vehicles must run on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen or a liquid that is at least 85% methanol. Reduced credits are allowed for mixed-fuel vehicles that run on an alternative fuel and a petroleum-based fuel.

The maximum credit for garden-variety autos and light trucks is $4,000. These credits will also fade into oblivion after 2010 unless Congress extends them.

So far, the IRS has certified only one 2007 model, the Honda Civic GX, as eligible for the alternative-fuel credit. The Civic GX runs on compressed natural gas and can earn a $4,000 tax credit. Presumably, more eligible vehicles will be announced in the not-too-distant future.

Continued: Other cars with tax credits

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