Federal Tax Credit For Hybrid Cars

One of the big incentives to buying a hybrid is the Federal Tax Credit that rewards you for your 'green efforts.' The reason why the Federal government suddenly became so generous is because of the higher prices that hybrid buyers were faced with. This meant that far fewer cars would be sold.

And since the U.S. hybrid car program was started by the Federal government to begin with, they have an obligation to the American public!

Especially since our Japanese friends out-engineered us shortly after President Clinton commissioned the hybrid-electric car program back in 1993. Japan's total domination of hybrid car technology resulted in the complete withdrawal of U.S. auto manufacturers from the hybrid car program by 2001. Because by this time, the Toyota Prius was everywhere, with Honda not far behind.

Where was the U.S? Ford and a couple other Detroit automakers were quietly making deals with Toyota to license their technology. It's no secret that the U.S. has been playing "catch up" to Japan in nearly all automotive technologies for many years. And hybrid technology is definitely no exception.

Anyway, the Federal tax incentive program is a pretty good deal, and it's written to reward those good folks who elect to go for the really "good" hybrids. That is, the hybrids that substantially improve on their gasoline-only counterparts. The bigger the gas savings, the bigger the tax credit.

Here's how it works:

Every person who bought a hybrid vehicle after JAN 1st, 2006 is eligible for a tax credit up to a max of $3400, based on how the particular vehicle that he bought compares to the average car of its class and weight from 2002. Specifically, buyers will receive a $400 tax credit for every 25% improvement in efficiency.

In addition, you may be credited more money (to a max of $3400) based on how much fuel the government anticipates you will save based on the size and weight of the car.

But, there is a catch:

This credit is given to only the first 60,000 vehicles sold by each different manufacturer. Some--like Ford, for instance, don't even plan on making 60,000 hybrids through half of 2007. So each and every person who buys a Ford hybrid will get the credit.

Toyota, however, is a whole other story: They'll blow through their 60,000 quota in no time flat, leaving the remaining buyers federal tax credit-less. But then again, the Toyota Prius gets so much better gas mileage than most of Ford's larger hybrids that Ford's buyers don't stand to get anywhere near the max $3400 tax credit anyway.

The hybrid tax credit system is likely to change in the not-too-distant future, though. Hopefully, it will cover everyone until everyone is driving a hybrid!

Charles Brown is a successful Webmaster and publisher of Hybrid-Electric-Car.net. You will find more information on the federal tax credit for hybrid cars on his website.