Incentives for Hybrid Cars

John Rockhold
May/June 2005

Buy a Ford Escape Hybrid before 2006 and you can take a $2,000 deduction on your federal income taxes.
MATTHEW T. STALLBAUMER


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If you buy a hybrid before 2006, you can take a $2,000 deduction on your federal income taxes. Basically, this deduction will reduce your federal taxable income by $2,000. For hybrids bought after Jan. 1, 2006, the recently enacted energy bill set up tax credits ? ranging from $250 to $3,400, depending on the vehicle's fuel economy. The credit would go toward your tax liability, the amount you owe before any withholdings.

Over the long term, the credit will be more advantageous to those who buy newer hybrid models and less helpful to those who buy better-selling hybrids such as the Prius. The energy bill established a complex formula to reduce the credits once an automaker sells more than 60,000 hybrids after Jan. 1. Hybrid buyers in 14 states also can take advantage of state-level incentives, including tax credits and exemptions from sales tax. Hybrid buyers in Colorado, for example, are eligible for tax credits of more than $4,500. There also are nonfinancial incentives ? such as being allowed to drive in lanes for high-occupancy vehicles and park without paying meter fees. Visit www.hybridcars.com to see if there are programs where you live.







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