Hybrid Car Income Tax Credit

The Volt is one of the qualifying hybrid vehicles
i Scott Olson/Getty Images News/Getty Images

The Internal Revenue service offers the qualified hybrid vehicle tax credit for vehicles purchased or placed in service on or after Jan. 1, 2006 and before Dec. 31, 2010. The planned phase-out of the hybrid car tax credit began with implementation of the tax credit and continued through the 2011 tax year. Whether you can take hybrid tax credit and how much of the credit you may take depends, in part, on when you purchased a qualifying hybrid car or placed the car in service.

Hybrid Vehicle Tax Credit

The hybrid vehicle is one of five types of alternative motor vehicles identified by the Internal Revenue Service for tax credits. The qualified hybrid vehicle tax credit, which originally allowed taxpayers to deduct up to $7,500, is available to taxpayers who purchase a new qualifying hybrid vehicle. The IRS requires manufacturers to certify that vehicles qualify for the credit and to calculate the amount of the credit. Vehicles for which the IRS withdraws certification do not qualify for the credit after the date of withdrawal. If certification is withdrawn on or after the vehicle purchase date, the vehicle qualifies for the credit even if the consumer does not claim the credit by the withdrawal announcement date.

Phase-Out Plan

The phase-out plan for the hybrid vehicle tax credit reduces the amount of the credit after manufacturers report the sale of 60,000 qualified hybrid vehicles. In the second calendar quarter after the quarter in which a manufacturer sells its the 60,000th hybrid vehicle taxpayers may take 50 percent of the total credit amount for the next two quarters. During the next two quarters, which are the final quarters for which the credit is allowed, taxpayers may take 25 percent of the total credit. Each manufacturer or its domestic distributor has a separate phase-put plan based on its quarterly sales of qualifying hybrid vehicles. The IRS has not, as of mid-2012, announced an extension of the hybrid vehicle tax credit for 2012 and beyond.

Qualifying Vehicles

The hybrid vehicle, either a car or light truck, has two onboard sources of propulsion energy: the rechargeable battery and an internal combustion engine. The IRS and car dealers maintain lists of hybrid vehicles that qualify for credit. Used vehicles are ineligible for the tax credit. The vehicles must be built by qualified manufacturers. The battery packs must have the capability for recharging from an external source and be rated for energy storage of at least four kilowatt-hours of energy. Vehicles that qualify for the plug-in electric drive motor credit do not qualify for the hybrid vehicle tax credit.

Eligible Taxpayers

You must be the original owner of the qualifying hybrid vehicle to take the tax credit. Original use of the vehicle must begin with the taxpayer who bought the qualifying vehicle to use or lease to others, but not for resale. The leasing company, not the consumer who leases the vehicle, may take the credit. The purchaser must intend to use the vehicle mostly in the United States.

IRS Form 8910

Taxpayers use IRS Form 8910 to calculate the tax credit for hybrid vehicles. The 2011 Form 8910 notifies taxpayers that the IRS withdrew the tax credit for qualified vehicles weighing 8,500 pounds or less that were purchased after 2010. The IRS ended the credit for vehicle weighing more than 8,500 pounds in an earlier tax year. Taxpayers who purchased a qualifying vehicle before 2011 and placed the vehicle in service during 2011 may take the credit for the 2011 tax year. The hybrid vehicles should not be included on Form 8910 unless the IRS extends the tax credit.

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