Tuesday, Jan. 22, 2008

Not all hybrids are taxpayers' pals

Green could turn into the new gold when it comes to promoting Earth-friendly cars and trucks. You can spot that marketing magic the minute you walk through the doors this weekend of the 2008 North American International Auto Show.

But if you get a little tempted - and maybe remember hearing something about generous tax breaks for hybrid cars and trucks - pay close attention to what you're buying. Buyers of the most popular Toyota hybrids no longer get a tax credit. And the Honda hybrids won't come with the hefty tax deals that they used to have, either.

This tax credit has always been tough to understand. Currently, the credit applies overall to qualified purchases of hybrid and lean technology vehicles sold from 2006 through 2010.

And right now, anyway, there's no credit for plug-in hybrids - even if some plug-ins make it to dealerships in 2010 or so.

Yet, the Alternative Motor Vehicle Credit, as it's officially called, varies based on manufacturer and model. The dollar amount of credits can change based on the fuel economy and weight of the model, as well as how many vehicles the manufacturer has already sold.

The first 60,000 hybrids or lean-technology vehicles sold per manufacturer - and that clock started ticking in 2006 - qualify for the full credit.

The cap was part of the compromise lawmakers made to win support for the credit from Detroit automakers, which did not want to give an unlimited benefit to Toyota and Honda.

And, no surprise, Toyota Motor Corp. and Honda Motor Co. each have hit the 60,000 sales limit.

Ford Motor Co. might hit the cap this year, but General Motors Corp. isn't anywhere close to that. And Chrysler doesn't even have a vehicle that qualifies for the tax credit in 2007 or 2008. Chrysler LLC announced last week that it plans to sell a hybrid Dodge Ram in the 2010 model year.

You can debate whether a cap makes sense at all if the idea is to encourage consumers to pony up the extra money it takes to buy environmentally friendly technology. But this is how the deal stands - and it is something you need to know if you're shopping for green.

The Internal Revenue Service maintains an official list of what cars and trucks get what kinds of credits - and who loses out on credits and when.

The government gets a quarterly review of the number of hybrid vehicles manufacturers have sold to dealers.

Once that 60,000 limit is hit, buyers gradually get a much smaller credit - the credit is first cut in half and later cut into one quarter of the full amount of the tax credit. And down the road the credit vanishes.

This year, you're out of luck when it comes to tax credits if you plan to buy a 2008 Toyota Camry Hybrid, a 2008 Toyota Highlander Hybrid or a 2008 Toyota Prius.

Anyone who bought a hybrid from Toyota or Lexus after Sept. 30, 2007, will not be eligible for any tax credit.

"We maxed out," said Martha Voss, a spokeswoman for Toyota Motor Sales USA in Washington.

"We would, however, like to see the government continue to take a leadership role supporting consumer interest in hybrids and other alternative-fuel vehicles," she said.

The Toyota Prius started out with a $3,150 tax credit if bought from Jan. 1, 2006, through Sept. 30, 2006. But that credit had fallen to $787.50 for purchases made April 1, 2007, through Sept. 30, 2007.

If you're looking at a Honda Civic CVT, you should know that the Honda hybrid tax credit for vehicles bought in 2008 also will be smaller than last year.

Honda's cumulative sales of qualified vehicles hit the 60,000 limit during the third quarter that ended Sept. 30.

So the credits for Honda are being phased out this year.

"There will be at least a partial Honda credit, but just a partial credit," said Mark Luscombe, principal analyst for CCH, a Wolters Kluwer business in Riverwoods, Ill.

Starting Jan. 1, the tax credit for Honda is cut in half. Honda Civic Hybrid CVT, either a 2007 or 2008 model, would have a $1,050 tax credit if bought this year from January through June 30.

A 2007 Honda Accord Hybrid AT and a 2007 Honda Accord Hybrid Navi AT each have a credit of $650 through June 30.

For purchases made July 1 through Dec. 31, the credit will be $525 for the '07 or '08 Civic Hybrid CVT and $325 for the 2007 Accord hybrids.

Beginning on Jan. 1, 2009, taxpayers who buy a Honda hybrid can't claim the tax credit.

GM, Ford and Nissan all can sell more hybrid cars and trucks and still offer the full credit.

Nissan has sold about 8,700 hybrid units through the end of 2007, according to Darryll Harrison, a representative for Nissan Motor Co. in Nashville, Tenn. The Nissan Altima Hybrid is now offered in eight states, including California. The Altima Hybrid is not sold in Michigan.

At the end of 2007, Ford had sold slightly more than 47,000 Escape and Mariner hybrids combined, said Ford spokeswoman Kristen Kinley.

Kinley said Ford could surpass the 60,000-cap sometime late this year if sales patterns are similar to those in 2006 or 2007.

A 2008 Ford Escape Hybrid, two-wheel drive, has a $3,000 tax credit, and the four-wheel drive Escape Hybrid has a $2,200 credit. The credits are less for the Escape's 2007 models, which have a $2,600 credit for two-wheel drive, and a $1,950 credit for the Escape Hybrid and the Mercury Mariner Hybrid four-wheel drive.

At Mazda, where Ford has a controlling interest, a 2008 Mazda Tribute 2WD has a $3,000 tax credit. The four-wheel drive 2008 model has a $2,200 tax credit.

GM, by contrast, can sell many more hybrids with the full credit.

Bob Trinz, RIA senior tax analyst from Thomson Tax & Accounting, noted that GM had reported 9,577 combined sales for qualifying vehicles to the IRS as of Sept. 30, 2007.

Greg Martin, director of policy and communications in GM's office in Washington said the automaker is advocating consumer tax incentives for plug-in hybrids, too.

Right now, the tax breaks would not apply to the plug-in technology. But Luscombe said that some energy legislation currently before Congress would expand the credits to include plug-ins.

GM has said it might start the production of a plug-in hybrid version of the Saturn Vue as early as 2010.

"We're driving hard for 2010," Martin said.

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MORE DETAILS ON HYBRID TAX CREDITS

The tax credit will apply only to the original purchaser of a new, qualifying hybrid or alternative-fuel motor vehicle. It is not available if you lease that vehicle.

Some households, especially upper-income households, also need to be aware that because of a limitation based on the alternative-minimum-tax, they could lose a part of their hybrid tax credit - or maybe all of the credit - even if they don't actually owe the alternative minimum tax, according to Bob Trinz, RIA senior tax analyst from Thomson Tax & Accounting.

See www.irs.gov for updated lists on qualifying hybrid vehicles. Click on newsroom and then look for "Hybrid Cars and Alternative Motor Vehicles." Information is updated throughout the year. Here, you can get a list of the credits available if you buy a new 2007 model, as well.

See IRS Form 8910 to fill out for the hybrid tax credit.