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
if there are programs where you live.