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2006 Hybrid Car TaxThe law that brought specific hybrid car tax credits was called the Energy Act of 2005, which is a revised tax credit system for hybrid cars and light trucks. The new code came into effect in January 2006 and will be phased out and reevaluated again in 2010. The code allows you to combine two different types of credits, ranging from $250 to $3,400, which are deducted from the your tax bill. The credit is void if your tax bill goes below zero. To be allowed under the tax credit code, car manufacturers are required to give the IRS proof that their hybrid vehicles fall under the definition of vehicles suitable for the credits. These credits apply in full only for a finite number of vehicles. For example, the tax rules specify that only the first 60,000 of Toyota's hybrid products sold are eligible for the full credit. After the 60,000, the tax credit becomes available at a reduced rate. For the six months after the 60,000th was sold, 50 percent of the credit amount is available. For the six months following that, 25 percent of the credit is available. After a year of reduced credits, the credit will no longer be offered for that vehicle.
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