Gone with the Tax Credits: An Important Message on your Next Vehicle Purchase

July 7th, 2008 at 08:31am Tawn Jacobs

 Tawn M. Jacobs, MST, CPA, CFP® 

Trepidation is one word to describe the feeling you have when you know that it’s possible to spend over two hundred dollars per month on gasoline.  Perhaps a word that is even scarier is realization!  Individuals across the country and across the globe are feeling the increasing pressures from filling up a tank of gas.  What was once disposable income for other wants and needs, any extra money that would have been spent elsewhere is now being wasted at the pump.  As a result of increasing fuel costs and the impact of these prices on the overall global economy, individuals and investors alike are flocking towards the Hybrid industry.  The allure of the Hybrid industry is in fuel efficiency, and for some people in the environmental benefits.  A half-electric and half-gas engine car is quite appealing for many audiences, especially those looking to save a few bucks at the pump.  However, what you should know before entering your local
Toyota or Honda dealership is that the benefits of owning a hybrid may not be as attractive as before.   

Some detriments you should know: 

• Hybrid cars actually only get about 20-35% more miles/gallon than other common gas saving cars (i.e. Honda Civic).
• Hybrids can cost anywhere from $5,000-8,000 more, depending on the type of car.
• Hybrid cars have more complex computer systems to dictate towards the gas/electric engine, many times leading to more maintenance stops and larger repair bills.

Some benefits that may be appealing: 

• The new hybrid vehicles do not require the consumer to charge the electric battery, as the gasoline engine will re-charge the battery if it does run out of power.
• These cars are significantly better for the environment, producing 25-35% less emissions.
• For individuals who are in stop and go traffic, the gasoline portion of the engine does not activate until the car is accelerating over 40 miles/hour, saving you bunches on gas!

Initially, large tax credits were offered to consumers who purchased these new cars (Prius, Insights), but as of late many of these limited time offers are running dry.  “According to the 2005 federal law that established the hybrid credit, the tax break begins to phase out after a manufacturer sells 60,000 qualifying vehicles.  Because of heavy demand for the Prius,
Toyota reached that benchmark early in the program (October 2007).”  These tax credits were once a significant incentive for buying a hybrid vehicle, as
Toyota offered $3,150 to consumers, acting essentially as a discount off the price of the car.  This tax credit is now obsolete, which is making it difficult for individuals to justify buying these hybrid vehicles.  Instead of having a discount towards the car for purchasing into a new technology, manufacturers and the government alike are abandoning this previously progressive thinking. 

Although the tax credits for older model hybrids are disappearing, new hybrid auto makers like Nissan and Ford are offering these credits at least for the time being, that is until the 60,000 car ceiling is met.  Before you seriously consider purchasing a hybrid vehicle, pay attention to all of the benefits and detriments listed above to determine whether or not a hybrid vehicle is for you! 

Sources:  The Columbus Dispatch : Popular hybrids are losing tax creditsHybrid Cars — Pros and Cons

Entry Filed under: Tax