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HybridCenter Mailbag: Tax Incentives
11/08/05

Hi everyone. As you might expect, we have been getting a boatload of questions from all of you out there, on a wide variety of hybrid (and non-hybrid) subjects. We try to get to as many as we can personally, but some of your questions, we felt, could use a wider airing. So we’re going to take the next few weeks to answer some of the more pressing, and more interesting questions and comments we’ve gotten since HybridCenter and HybridBlog opened up shop.

Today’s question is one we’ve gotten most often. I’m just going to paraphrase because we’ve gotten so many versions of it, I didn’t know which one to pick:

If I buy a hybrid in 2005, but take ownership of it in 2006, will I still be able to get the new tax credit?

Well, to paraphrase my favorite 23rd Century physician, Dr. McCoy, “Dammit, Jim, We’re scientists, not tax laywers!” We would recommend you speak to your auto dealership and/or a tax specialist for a definitive answer, as the IRS can be a tricky beast. That said, here’s what we’ve found out.

It seems that the confusion is coming from the wording in the new tax incentive that says that qualifying vehicles “placed in service” starting on 1/1/2006 will be eligible for the tax credit. This lends to the idea that you could buy your car in ’05, but take possession of it in ’06 and still get your credit. Folks we’ve spoken to are dubious that you’ll actually be able to pull that off, because there is still the $2,000 federal tax deduction on hybrids (worth less than a tax credit) in effect until 1/1/2006. So very likely any hybrid purchased in ’05 will qualify for the deduction, not the credit. If you want the credit, we would recommend waiting until next year to purchase. We’re also pretty certain that putting down a waiting list deposit on a hybrid will NOT hamper your ability to get the tax credit, as that is not when you are actually purchasing your vehicle.

Remember, you can see our full list of federal and state incentives here.

Can I buy a used hybrid and still get the credit?

Sorry, no, both the current tax deduction and the new tax credit only apply to new vehicles. The point is to get more hybrids on the roads, so giving tax credits for recycled hybrids doesn’t make a lot of fiscal sense from the government’s point of view. However, a used hybrid could make a lot of fiscal sense for you, even without the tax incentives, with gas savings and the likelihood that you won’t be paying a new car premium. We’d just caution that you be sure that the warranties, especially on the battery, are fully transferred over to you before you buy used.

Posted by: ScottN 11/08/05

Original post and comments can be found on Hybridblog.org.