The U.S. Energy Policy Act of 2005 established a federal income tax credit of up to $3,400 for the purchase of new hybrid vehicles, purchased or placed into service after December 31, 2005. Vehicles purchased after December 31, 2010 are not eligible for this credit. The law limited the tax credits to the first 60,000 eligible vehicles per carmaker, meaning that credits for popular models will be phase out before the tax break's scheduled expiration date. Note these are credits — dollar for dollar tax savings — not merely deductions. The tax credit is to be phased out two calendar quarters after the manufacturer reaches 60,000 new cars sold in the following manner: it will be reduced to 50% if delivered in either the third or fourth quarter after the threshold is reached, to 25% in the fifth and sixth quarters, and 0% thereafter. The Internal Revenue Service is responsible for certifying that certain passenger autos and light trucks qualify for the credit and the amount of the credit.
Contents
- Energy Policy Act of 2005
- Classifications for tax credit certified vehicles
- Phase out credits
- Historical credit rankings
- Carpool lane incentives
- References
Some state governments in the U.S. have introduced special provisions for hybrid vehicles driving in carpool(HOV) lanes.
Energy Policy Act of 2005
The Energy Policy Act of 2005 created incentives to encourage the purchase of low emission vehicles. The Energy Independence and Security Act of 2007 expanded these incentives to include emerging electric vehicle, and plug in hybrid, technology. The Energy Improvement and Extension Act of 2008 only acted to push back tax credit-claiming deadlines and include more electric vehicles in existing incentive programs. Although many speculated that more recent stimulus legislation would greatly expand existing incentive programs, but the legislation disappointed many. When passed, the American Recovery and Reinvestment Act of 2009 focused more on green infrastructure than personal transportation incentives. The act did allocate money, however, to equip government agencies with more efficient vehicles, created a grant program for diesel owners wishing to outfit their cars with cleaner burning technology, and added a significant tax incentive program for plug-in hybrids.
The tax incentives that are the result of the Energy Policy Act of 2005 are offered to make pricier, but more environmentally friendly vehicles more appealing. Because the process of manufacturing many low emission vehicles (LEV), for example, a hybrid engine, is more technology intensive, and therefore more expensive, than the process of manufacturing a standard gasoline engine, the cost a hybrid automobile is greater than that of a car with comparable performance. Many potential buyers will require economic incentive to purchase a more expensive LEV over an automobile that runs on gasoline, so a tax credit is offered to effectively cheapen the LEV and encourage the purchase of more environmentally friendly automobiles.
The characteristics and availability of an offered tax credit will vary based on the characteristics and popularity of the car in question, respectively. The size of the offered tax credit typically corresponds in value to the amount of money that the technology in question adds to the manufacture price of the car. For example, hydrogen fuel cell vehicles that are in the early stages of development are more expensive and receive a larger tax credit than a diesel car that is cheaper to make. Existing incentive programs are also set to phase out after a given maker sells 60,000 hybrid vehicles, so more popular models like the Toyota Prius are no longer subject to a tax credit.
Incentives may also vary based on how well the car in question performs in these “green” categories. For example, the buyer of a Tesla Roadster, a fully electric vehicle, will receive a much larger tax credit than the buyer of a standard hybrid, which will pollute much more during its lifespan. The federal government now lists models that are pre-approved to receive a tax credit; some other models may qualify on an ad hoc basis.
Classifications for tax credit certified vehicles
Phase out credits
The 60,000-vehicle cap applies to all nameplates across an automaker's business, and as such, Lexus hybrids are accounted as part of Toyota Motor Company production, or Mercury hybrids are part of Ford Motor Company hybrid production. As of mid-2010 three auto manufactures have reached the 60,000 cap, Toyota reached it in 2007, Honda in 2008, and as of April 1, 2010, all Ford hybrid vehicles are also no longer eligible for tax credits.
The new qualified plug-in electric vehicle credit phases out for a PEV manufacturer over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles from that manufacturer have been sold for use in the United States. For this purpose cumulative sales are accounted after December 31, 2009. Qualifying PEVs are eligible for 50% of the credit if acquired in the first two quarters of the phase-out period, and 25% of the credit if bought in the third or fourth quarter of the phase-out period.[179] Both the Nissan Leaf electric vehicle and the Chevrolet Volt plug-in hybrid, launched in December 2010, are eligible for the maximum $7,500 tax credit.[182] The Toyota Prius Plug-in Hybrid, released in January 2012, is eligible for a $2,500 tax credit due to its smaller battery capacity of 5.2 kWh.[183] All Tesla Motors cars are eligible for the 7,500 tax credit.
Historical credit rankings
Hybrid tax credits from lowest to highest:
Carpool lane incentives
As of July 29, 2005 Arizona Revised Statutes from the 47th session Chapters 28-2416 and 28-737 allow hybrid vehicles that have been approved by the EPA as meeting, at a minimum, the United States Environmental Protection Agency Ultralow Emission Vehicle Standard with a US$8 special plates/hybrid sticker displayed on said vehicle to use the High Occupancy Vehicle (HOV) lanes regardless of the number of passengers. Arizona has not instituted this policy, as it is awaiting clarification of the federal Hybrid HOV waiver from the EPA. On January 16, 2006, SB 1179 was introduced that would reaffirm the HOV benefit, pending federal clearance.
In California, hybrids with an EPA estimate of 45 mpg‑US (5.2 L/100 km; 54 mpg‑imp) or higher meet the requirements to drive in California's carpool lanes with only one passenger.
Virginia has also provisions for hybrid vehicles. For example, the Toyota Camry Hybrid was eligible, but must have been specially tagged by June 30, 2006 to be eligible for I-95 and I-395 exemption. Exemption for I-66 and Dulles Toll Road HOV usage continues even for registrations beyond June 30.