Tax Credits to Plug-in Cars

In a few weeks, Ford will become the third auto company to see federal incentives for its hybrid gas-electric cars completely vanish. Tax credits for Honda hybrids bit the dust at the beginning of last year, and Toyota hybrid credits completely phased out in late 2007.

The clean vehicle incentives instated in 2005 provided tax credits, as much as $3,400, for 60,000 buyers per each automaker before a phase-out period of 16 months. Ford reached the 60,000 hybrid mark before April 1, 2009—so beginning on April 1, 2010, there are zero tax credits for a Ford Fusion Hybrid or Ford Escape Hybrid. Tax credits remain for hybrids and clean diesel vehicles from General Motors, Volkswagen, Mercedes and BMW—but with the exception of the VW Jetta TDI, these are low volume vehicles.

Instead, legislators have jumped to the next technology breakthrough: tax credits for plug-in hybrids and electric cars. A combination of local and national credits—up to $7,500 at the federal level, plus a $2,000 credit for charging equipment installation, plus state-based incentives— represent so far the largest bundle of incentives for private purchasers of green electric-drive vehicles.

Yet, these grid-enabled vehicles are not yet available—and when they arrive in later 2010, they will be expensive (even with tax credits) and available in limited supply. This is a good argument for generous tax credits to jumpstart the market. However, the first wave of buyers of plug-in cars will be highly motivated early adopters—a group likely to buy regardless with or without large tax credits. Meanwhile, there won’t be an incentive for some mainstream buyers who need a slight nudge to go hybrid.

The phase-out of incentives for conventional hybrids, combined with the slow rollout of plug-in hybrids and EVs, could mean a multi-year gap in the right incentives for the right markets for greener vehicles.

See a summary of the hybrid and clean diesel tax credits for all years, and the appropriate forms. The exact amount of your credit may vary. Please consult a tax professional.

Federal Tax Incentives

Energy Tax Credits for Hybrids

The phase out of incentives for conventional hybrids, combined with the slow rollout of plug-in hybrids and EVs, could mean a multi-year gap in the right incentives for the right markets for greener vehicles.

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