How to Apply for a Hybrid Car Tax Break

March 19, 2012

With a qualifying hybrid car, you can save thousands of dollars by claiming the hybrid car tax credit on your federal income tax form. Get the details.

Hybrid Car With Owner

A hybrid car tax credit can help save money on your tax bill and offset some of the cost of your new vehicle. As of December 31, 2010, the credit for strictly gas/electric hybrids is expired, but a new federal tax incentive covers plug-in hybrids and all electrics, at up to $7,500, plus $2,000 for charging equipment installation. Different states have different credits and incentives for their state income tax. So, to help you claim a hefty tax credit on your Federal return, here is a step by step guide on how to claim your tax credit on a plug-in hybrid or all electric vehicle.

Research Tax Credit Eligible Vehicles
First, you will need to choose a new vehicle that qualifies for a tax credit. There are many makes and models to choose from and all of them qualify for varying credit amounts. The easiest way to find vehicles that are eligible for the credit is to visit the IRS website. Browse the lists of eligible vehicles and research makes and models that interest you.

Choose a Vehicle and Buy It
After you've considered all of the vehicles eligible for hybrid vehicle tax credits, make a final purchasing decision and buy it from a local dealership or online.

Download Forms
Again, visit the Internal Revenue Service's website to download any forms you need to apply for your hybrid car tax credit. Generally speaking, if you've already located the amount of the tax credit on the IRS website, you will only need to download any tax return forms or other forms that you usually file at tax time.

Apply the Credit and Save on Your Taxes
Complete your federal income tax form as you normally would; however, look for the box or on your return that allows you to enter the amount for a new hybrid car tax credit. Enter the amount for your new qualifying hybrid vehicle from the vehicle indexes on the authorized vehicle list previously mentioned. Don't forget to subtract the amount of the hybrid car tax credit from the amount of federal income tax that you owe.

If you have additional questions about how to apply the credit, consult an accountant or tax professional for further assistance.

Pros and Cons of Hybrid Car Tax Credits

The hybrid car tax credits passed by congress allowed many people to offset the cost of purchasing a fuel efficient vehicle with a credit on their income tax returns. However, if you are thinking of purchasing a hybrid vehicle to take advantage of a potential tax break, there are a few things you should consider.

Pros of Hybrid Car Tax Regulation

  • It saves money. Tax breaks and credits for hybrid cars allow consumers to potentially save thousands of dollars on the price of an expensive hybrid vehicle. Because hybrid cars are usually more expensive than their standard gas powered counterpart, a tax credit that helps consumers save money on this type of car is always welcome.
  • It promotes buying green cars. By offering go green discounts on cars in the forms of tax credits, the government is effectively promoting the purchase of greener, more fuel efficient vehicles. This helps to conserve natural oil resources and reduce our carbon footprint.
  • It stimulates the economy. When congress authorizes tax credits for the purchase of any type of vehicle, this helps to stimulate our economy. When there is a tax break or credit available, consumers are more likely to buy a vehicle to take advantage of the credit and save money. When consumers buy more cars, the money they spend often trickles back into the local economy and helps to stimulate job growth and spending.

Cons of Hybrid Car Tax Regulation

  • It ignores other green consumers. Although tax breaks and credits offered by Congress are aimed at stimulating sales of greener, more fuel efficient hybrid vehicles, they do nothing to reward consumers that help our environment in other ways. For example, hybrid car tax laws do nothing to reward passengers of public transportation or those that take part in carpooling teams. Perhaps, there should be tax considerations made for consumers that reduce our environment's carbon footprint in other ways.
  • It denies tax credit for pre-owned hybrids. Current hybrid car tax laws only offer credits and benefits to purchasers of new hybrid vehicles. There is no hybrid car tax credit or deduction currently available for buyers of used hybrid vehicles. So, unless you are willing to pay the high price of a new hybrid vehicle, you won't be able to claim a credit or deduction on your personal income tax return.
  • It may not cover higher price of hybrids. A new hybrid vehicle can often cost between $5,000 and $15,000 more than a comparable vehicle that uses a standard gasoline engine. In most cases, the tax credits for hybrid vehicles range from only a few hundred dollars to around $3,000 to $4,000. So, when you consider the high cost of a hybrid vehicle, the amount of the tax credit will seldom, if ever, offset the entire price difference between hybrid and standard gasoline powered vehicles. Furthermore, the fuel economy savings of many hybrid vehicles will often fall short of covering the price difference.

Car Emission Tax Facts

The carbon tax or car emissions tax is a frequent topic of discussion. Many states already charge an emissions fee or tax for all vehicles that travel on state roads and highways. However, rates for emissions fees or taxes are not uniform. For example, emissions testing fees in California are much more expensive than those charged in Georgia. Some states don't have any smog or emissions testing requirements. There are lot of misconceptions about emissions taxes and how they are implemented.

New Biodiesels Are Taxed More than Gasoline Cars
Many people are under the assumption that the newer biodiesel or alternative fuel vehicles produce lower levels of carbon-based emissions than do fuel-efficient gasoline engine based vehicles.

While this may be true when comparing bio diesel vehicles against larger SUVs and pickup trucks, many fuel-efficient gasoline cars still produce lower levels of carbon-based emissions than even the cleanest diesel powered cars. Most states still charge more in emissions fees for biodiesel fueled vehicles than they do gasoline fueled motor vehicles. On average, emissions taxes average $0.12 a gallon for diesel vehicles and only $0.11 a gallon for gasoline powered vehicles.

Carbon Tax Is Not a Federal Tax
Although some lawmakers have been attempting to pass a carbon tax in the United States for several years, there is still no federal law mandating such a tax. However, there are some states that have imposed some sort of carbon tax on drivers.

California and Colorado both have carbon taxes that are assessed to drivers in certain parts of those states. The San Francisco Bay Area in California introduced a carbon tax on many business' vehicles in the amount of 4.4 cents per ton of carbon estimated to be produced. Boulder, Colorado introduced a carbon tax in November of 2006 as part of their Climate Action Plan Tax.

European Union Collects Emissions Taxes
Countries in Europe are pushing for a global carbon tax to be assessed on drivers of motor vehicles. Many countries in Europe tax drivers based on the amount of carbon-based emissions their vehicles create.

Sweden, Finland, Denmark, Norway, the Netherlands, France and the United Kingdom all charge some sort of carbon-based emissions tax to drivers of certain motor vehicles. Rates for taxes in these countries vary considerably; however, they typically range from about $25 to $100 per ton of CO2 gas produced.

The United Kingdom has introduced an emissions tax calculator that allows motor vehicle owners and taxpayers to calculate how much carbon tax they have to pay each year, based on the type of vehicle they drive, the number of miles they drive per year and the municipality or location they live in. Carbon taxes in Europe are expensive, but government leaders claim that these taxes have helped reduce carbon emissions in these countries by about 15 to 30 percent.

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