Is it Really Time to Buy a Hybrid?

Tax Tips

This is a question that many, many people are contemplating right now.  There are, though, as many factors to this decision as there are people considering it.

I know many of you are on this blog for tax purposes, so the first factor we will consider is the tax implications of buying a hybrid.

I moderate our Live Community and I see many people posting questions and comments about hybrids.  One of the most common issues is “I didn’t get the tax break I was promised.”  Usually this promise comes from the person selling the hybrid.  It seems many of these salesmen are glossing over the fine details.

Here are the basic facts.

1. The credit is only available on new hybrids.

2. The credit is only available if you purchase the hybrid, not lease.

3. The full amount of the credit varies by which hybrid you purchase.

4. The amount of the credit can depend on when you purchase the hybrid.

5. If you are subject to AMT, you likely won’t get the credit.

6. Some states have credits, some do not.  See your state’s website for the latest.

If you need some aspirin for your headache, I’ll wait.  There’s more.

Facts 3 and 4 need more explanation.  For the full amount of the credit, there’s no way to figure it out.  Your best bet is to just look it up.  Here’s the IRS list of 2008 hybrid credits.

If you look at that list, you’ll see some amounts are based on purchase date and broken into 4 periods.  This brings us to fact number 4.  When you purchase the car matters.  This part of the credit is very convoluted.  I’m going to do my best to try to explain it in easier terms than the IRS used.

The first thing you want to determine about the hybrid you are interested in is how many hybrids that manufacturer has sold so far.  The salesman should have some idea.  The IRS website also puts out news releases when the quota is hit.  The full credit is available until after the quarter the car company reports that it has sold 60,000 qualified hybrid units.  This potentially means more than 60,000 people get the full credit, but a good rule of thumb is to figure if they’ve sold that many, you won’t be one of them.

Next, when did they hit that mile marker?  This is reported quarterly, so it will be the end of March, June, September or December.  The next six months after that, the credit will be 50% of what it was.  Then another 50% reduction for the next six months.  Then nothing.  You can get a good example of this by looking at the Toyota Camry on the link I gave above.

What it really boils down to is that if you are looking at a popular car, there is no Federal credit.  It may be more prudent to base your decision without looking at the tax advantages.

As I stated earlier, though, there are many other things to consider.  First, you should know how a hybrid works.  There’s a lot in that article to keep in mind.  It’s lighter and more aerodynamic to lessen the effects of wind and gravity on your fuel economy.  It has more advanced technology to make things more efficient in general.  But that could be said of some newer models of non-hybrid cars as well.  What matters here is the electric motor.  Hybrids shut off the gas motor when you are at a full stop.  Some use the electric motor for low speeds and use the gas motor for passing or going up hills.  Some use the gas motor and use the electric to assist in passing and going up hills.  So you need to consider your driving habits and where you drive.

You also want to consider your current vehicle and what payments, if any, you are making on it.  If you own your own vehicle outright and it doesn’t need replacing, buying a hybrid for the gas savings does not make sense.  You’re possibly bringing on a higher insurance payment because full coverage will be required in addition to the monthly payment on the vehicle.  If you’re at the point where you have to get something anyway, with gas prices continually going up, a hybrid is something you should sit down and do the math on.  It may be a smart move.

If you’re looking at one of the more popular models of hybrid, consider buying used.  We all know that the instant a new car rolls off the lot it depreciates enormously.  Your savings could be more than the credit you would get for buying new.

I’ve written this from the viewpoint of saving money by buying a hybrid.  You might be looking to buy one simply to help the environment.  Good for you.  I hope I’ve still given you some helpful tips.

Here are some more resources for buying a hybrid (or any car in some cases). – The real costs of owning a hybrid. – Car tips and advice. – Hybrid Cars.

J.D. Power – More Choices than Ever.


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