Tax credit for hybrids

A purchaser of a hybrid passenger automobile may be allowed a tax credit of up to $3,400 depending on the model. A credit is usually more advantageous than a deduction because a tax credit is subtracted dollar-for-dollar off the bottom line of your federal tax bill, while a deduction simply reduces taxable income.

The law limits the credits to the first 60,000 hybrid vehicles from each automaker. As of January 1, 2009, the credit for both Toyota and Honda hybrids has completely phased-out.

A few additional points about the credit:

• In general, the credit is allowed to the vehicle owner, including the lessor of a vehicle subject to a lease. Thus, if you lease a hybrid (rather than purchase it), you won't qualify for the credit.
• The original use of the hybrid auto must begin with you, i.e., the vehicle must be new.
• The credit isn't allowed if you buy the hybrid auto for resale.

To find out if a car qualifies for the credit, and to find the credit amount, go to the following IRS website, scroll down, and click on the appropriate model year: Qualifying Hybrids