Dunnan on Dollars

  Personal Finance Tips from Nancy Dunnan

HYBRID TAX BREAKS
Fuel Efficient, Tax Efficient

March 14, 2008 - The price of gasoline in this country hit a nationwide average of $3.22 per gallon on Monday. That was for regular. More for premium. Not nice news, although not as awful as the all-time high of $3.40 in March 1981.

Note: Tax credits are more valuable than tax deductions because they give you a dollar for dollar reduction of your tax bill.

Another plus, even if you don't itemize, you can claim the hybrid car credit.

However, this being the IRS, the credit is not universal nor simple to figure out. Here are five things you need to know.

1) The credit is based on a complicated formula that determines the car's fuel economy and lifetime fuel savings. Credits range from $250 to $3,000.

Tip: For a complete list of individual vehicles and their tax credits, go to: http://www.fueleconomy.gov/.

2) The credit eventually runs out. When a manufacturer has sold 60,000 hybrid vehicles, the credit you receive as a purchaser starts to phase out and eventually it ends completely.

Way back in 2006, Toyota (manufacturer of Prius and Lexus) hit 60,000 sales. However, if you purchased either a Prius or Lexus hybrid during the first nine months of 2007 you are eligible for a credit, but it will be a reduced one.

Although Honda reached the threshold number in the third quarter of 2007, if you purchased a Honda hybrid last year, you're still eligible for the full credit. The credit for Hondas will totally disappear in 2009.

The good news is that Ford, GM and Nissan have not yet reached their thresholds.

3) Taxpayers subject to the alternative minimum tax (AMT) are not entitled to the credit.

4) The credit applies only to gas/electric hybrids and the Honda Civic GX, which operates on natural gas. (The latter is available only in two states - California and New York.)

5) The E85, which runs on 85% ethanol, does not come with the tax credit.

For Further Information...

The government web site, http://www.fueleconomy.com/ is a good place to begin your research. It covers a number of topics, including a list of the lowest gas prices across the country, easy-to-understand details on how hybrids work, information on finding and comparing cars, air pollution ratings, what diesels are, where to purchase E85 and more.

- Nancy Dunnan

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If you want to suggest a column topic for Nancy, drop her a line.

Like what Nancy has to say? you might be interested in the new edition of her book:
How To Invest $50 To $5,000: The Small Investor's Step By Step Plan for Low-Risk, High-Value Investing