An energy-efficiency tax credit that took effect January 1, 2006, brings good news for buyers of hybrid and alternative-fuel vehicles. The credit replaces last year's deduction, and in most cases, it offers a better tax break for those who drive green.
How much better? In 2005, Prius buyers were eligible for a $2,000 deduction off their total earned income. A Prius buyer with earnings of $50,000 would have his earned income reduced to $48,000; in a 30-percent tax bracket, that reduction translates into savings of $600. In 2006, all Prius buyers qualify for savings that are more than five times greater. They get a straight credit off their tax bill of $3,150.
The dollar amount of the credit is dependent on vehicle model; those with the best fuel economy and lowest emissions qualify for the most significant credits. The credit is also influenced by the vehicle's popularity and when you plan to buy it. Only a limited number of vehicles per automaker qualify; once a manufacturer sells 60,000 qualifying vehicles, the tax credit is phased out over a period of 15 months for vehicles produced by that automaker. Also, the vehicle must be bought, not leased, to qualify for the tax credit.
Diesel-equipped vehicles and a handful of hybrids are not eligible, due to their failure to meet emissions requirements. Hybrids like the manual-equipped Honda Insight and the upcoming Saturn Vue Green Line fail to make the cut. Same goes for diesel versions of the Jeep Liberty, Volkswagen Golf, Volkswagen New Beetle and Volkswagen Jetta.
Using estimates gathered from manufacturers and the American Council for an Energy-Efficient Economy, we've come up with a tally of the hybrid and alternative-fuel vehicles that offer buyers the best tax-credit bang for their buck. Once again, these figures are estimates. The Treasury Department hasn't yet released specific tax credit dollar amounts for any hybrid vehicles; it has only issued a "guidance" which explains the formula it'll use to derive a final number.
- 2006 Honda Civic GX — Estimated total credit: $4,000
- 2006 Toyota Prius — Estimated total credit: $3,150
- 2006 Ford Escape Hybrid (2WD) — Estimated total credit: $2,600
- 2006 Toyota Highlander Hybrid (2WD) — Estimated total credit: $2,600
- 2006 Lexus RX 400h — Estimated tax credit: $2,200
- 2006 Toyota Highlander Hybrid (4WD) — Estimated total credit: $2,200
- 2006 Honda Civic Hybrid (CVT) — Estimated tax credit: $2,100
- 2006 Ford Escape Hybrid (2WD) — Estimated total credit: $1,950
- 2006 Mercury Mariner Hybrid — Estimated total credit: $1,950
- 2006 Honda Insight (automatic) — Estimated total credit: $1,450
Copyright Edmunds.com, Inc. All rights reserved. First published on www.edmunds.com and excerpted with permission.