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Tax Rule, Automaker Phase-Out Could Block Hybrid Tax Credit

February 14, 2007

A complex tax rule could prevent some hybrid owners from qualifying for a tax break, the Detroit Free Press reports.The Energy Policy Act of 2005 enacted tax credits for hybrids and other alternative-fuel vehicles that were bought from 2006 through 2010. The credit replaced a deduction that applied in earlier years.The hybrid-related credit cannot be used to reduce your alternative minimum tax. So the tax break for buying a new hybrid or fuel-efficient vehicle could be cut or eliminated because of the AMT, according to the Detroit Free Press.In addition, a phase-out rule mandates that starting in 2006, the first 60,000 hybrids sold per manufacturer would qualify for the full credit. After that, buyers would get a smaller credit and ultimately the credits would vanish for that automaker.Toyota Motor Co., including the Lexus division, sold its 60,000th hybrid vehicle in the second quarter of 2006.Hybrid owners get the full $3,150 credit for a 2006 Toyota Prius, if it was purchased from Jan. 1 to Sept. 30, 2006. But a taxpayer who bought a 2006 Prius from Oct. 1 through Dec. 31, 2006, only would qualify for a $1,575 credit.The Internal Revenue Service said that hybrid cars made by General Motors Corp. are still eligible for a tax credit because the company has not yet hit the cap. GM has sold more than 5,500 hybrid trucks and SUVs made by Chevrolet, Saturn and GMC since the credit started last year, the IRS said.
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