Big new tax breaks for hybrid cars Starting next year, buying a fuel-efficient vehicle will help keep IRS at bay. If you just bought a brand new fuel-efficient hybrid vehicle, sorry but you should have waited. Starting Jan. 1, 2006, buyers of some hybrid vehicles can get a hefty tax credit. But the credits vary a lot and some very fuel-efficient vehicles still get no credits at all. Click here to read more.
Small Caution about the tax break: If you have been subject to AMT (Alternative Minimum Tax) this year, you most likely will have it next year too. The credit will be of no, or reduced benefit to you if AMT kicks in. You may want to do a reveiw of your 2005 taxes and project your tax return impact on AMT for 2006 before hailing the credit you will (not) get resulting from the Prius. However! Working with your knowledgeable tax preparer MAY enable you to shift paying some tax preference items (like property taxes and state income taxes) into another year, thus reducing AMT and permitting use of the credit.
Here's the whole scoop from the US Dept. of Energy http://www.energy.gov/engine/content.do?PU..._CODE=SPOTLIGHT "This tax credit is for vehicles “placed in service†beginning January 1, 2006, but because there is a waiting list for many hybrids, consumers can receive the tax credit if they arrange to purchase the vehicle this year as long as they do not take possession of the vehicle until January 1, 2006. This tax credit will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles. At that point, the tax credit for each company’s vehicles will be gradually reduced over the course of another year"
