Qualified Hybrid Vehicles

NOTE: The credit for qualified hybrid vehicles terminates effective 12-31-2010.  The vehicle, even if a prior year vehicle, must be acquired prior to 1-1-2011 and meet the other requirements to claim the credit.  

Vehicles Purchased or Placed in Service

The Energy Policy Act of 2005 provides a credit for taxpayers who purchase certain energy efficient vehicles, including Qualified Hybrid vehicles.¹ Hybrid vehicles have drive trains powered by both internal combustion engine and a rechargeable battery.

Notice 2006-9 provides procedures for manufacturers to certify to the Internal Revenue Service that certain passenger autos and light trucks qualify for the credit and the amount of the credit and Notice 2007-46 provides certification procedures for heavy hybrid vehicles.² The credit calculation procedures for passenger autos and light trucks are different than the calculation procedures for heavy hybrids. Generally, for a qualified hybrid vehicle, a taxpayer may rely on the manufacturer’s certification that a specific make, model and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies.³

The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

Even though a manufacturer has certified a vehicle, a taxpayer must meet the following requirements to qualify for the credit:

1. The vehicle must be placed in service after 12-31-05 and purchased on or before 12-31-10.
2. The original use of the vehicle must begin with the taxpayer claiming the credit.
   • The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.
     
     
3. The vehicle must be acquired for use or lease by the taxpayer claiming the credit.
   • The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
   • For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.
     
     
4. The vehicle must be used predominantly within the United States.

The following passenger vehicles and light trucks have been certified for the hybrid tax credit in the following amounts. For qualifying heavy hybrid vehicles see: Qualified Alternative Fuel Motor Vehicles and Heavy Hybrid Vehicles.

Eligible Vehicles

From April 7, 2006 through January 31, 2007 the Internal Revenue Service acknowledged the manufacturers’ certifications of the qualified hybrid vehicles via IRS News Releases.

Qualifed Cars and Credit Amounts

Credit Phase Out

The new qualified hybrid motor vehicle credit for passenger automobiles and light trucks begins to phase out in the second calendar quarter after the calendar quarter in which at least 60,000 of the manufacturer’s qualifying hybrid and advance lean burn passenger automobiles and light trucks have been sold. Notice 2006-9 requires manufacturers that have received acknowledgement of its certification must submit to the Service a report of the number of qualified passenger auto and light truck vehicles sold to a retail dealer during the calendar quarter. For this purpose, qualified vehicles are any passenger automobile or light truck that is a new advanced lean burn technology motor vehicle or a qualified hybrid motor vehicle. After review of the quarterly reports, the Service will issue an acknowledgement letter to the vehicle manufacturer stating whether purchasers many continue to rely on the certification.

Notice 2006-78 announced the credit phase out schedule for qualified vehicles manufactured by Toyota Motor Sales USA, Inc.(Toyota and Lexus vehicles). Notice 2007-98  announced the credit phase out schedule for qualified vehicles manufactured by American Honda Motor Company, Inc. (Honda vehicles). The table above includes both the full credit and the reduced credit amount depending upon when the vehicle was purchased.

The date of purchase determines the amount of the credit available for a vehicle, i.e. whether a vehicle is eligible for the full credit or whether a portion of the credit is phased-out. The placed in service date determines the taxable year in which the credit may be claimed. 

For example, if consumer A purchases a Prius on Sept. 30, 2006, and takes possession in February 2007, consumer A can claim the full credit for 2007, the year in which the vehicle is placed in service. On the other hand, if consumer B purchases a Prius on Oct. 1, 2006, and takes possession of the vehicle in February 2007, Consumer B can claim 50% of the credit in 2007, the year in which the vehicle is placed in service.

Quarterly Sales

Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. As indicated above, taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advance lean burn technology motor vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

For example, F Company is a manufacturer of hybrid motor vehicles, but not advanced lean-burn technology motor vehicles. F Company sells its 60,000th hybrid car on March 31, 2007.

• Ms. Smith buys an F Company hybrid car on June 30, 2007, and claims the full credit.
• Ms. Maple buys an F Company hybrid car on Dec. 31, 2007, and claims 50 percent of the credit.
• Mr. Grey buys an F Company hybrid car on June 30, 2008, and claims 25 percent of the credit.
• Mr. Green buys an F Company hybrid car on July 1, 2008, and is unable to claim the credit, because the credit has phased out for F Company vehicles.

More information on the latest hybrid quarterly sales is available.

NOTES:

1. As of July 1, 2009 Saturn Corporation is not a subsidiary or affiliate of General Motors Company.  However, Saturn vehicles will be included in the GM count for hybrid quarterly sales until all Saturn inventory is sold.
2. Effective July 7, 2009, General Motors Company began operations. The new GM Company was created from the old GM Corporation in an asset sale approved by the bankruptcy court on July 5, 2009. The core brands of the new GM Company are:
   • Buick
   • Cadillac
   • Chevrolet
   • GMC

¹ IRC §30B potentially allows a credit for four separate categories of vehicles: 1) Fuel Cell vehicles, 2) Advanced Lean Burn Technology vehicles, 3) Hybrid vehicles and 4) Alternative Fuel vehicles.
 
² The deduction allowable for certain hybrid vehicles under IRC §179A is no longer available for vehicles placed in service after December 31, 2005. 
 
³ If the Internal Revenue Service publishes an announcement that the certification for any specific vehicle has been withdrawn, taxpayers cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement.