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Consider a hybrid vehicle

Article

There are tax advantages when you buy a hybrid automobile: a tax credit of up to $3,400, for instance.

If you purchase a hybrid vehicle in 2006, you can obtain a tax credit of $400 to $3,400, depending on the model. Keep in mind, a credit is more advantageous than a deduction, because it's subtracted dollar-for-dollar off the bottom line of your federal tax bill, while a deduction simply reduces taxable income.

The credit amount depends on the fuel efficiency; the more gas it saves, the higher the credit. Calculating the exact amount is a bit complicated and depends on three separate factors: the vehicle's weight, fuel economy, and lifetime fuel savings. You should be able to get this information from your dealer.

If you're interested in a hybrid vehicle, don't wait to purchase. While the credit is set to expire at the end of 2010, the incentive will end much sooner for many hybrid models because the law limits the credits to 60,000 vehicles from each automaker. Once a manufacturer has sold 60,000 hybrid vehicles, the tax credit for that manufacturer's hybrids will slowly reduce over the next five consecutive quarters, eventually dropping to zero. Check with your dealer to make sure the credit from the manufacturer is still available.

Also be aware, if you lease, the credit will be available to the lessor, not you. You also can't receive the credit if you're subject to the alternative minimum tax. And if you use the car in your practice and take an IRS code section 179 expensing election, to the extent that you do, no credit is available.

Gary I. Glassman

Gary I. Glassman, CPA, is a partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member.

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