Stimulus Package and Hybrid Tax Credits Offer Consumers Many Tax-Saving Options

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With the new stimulus package offering consumers the ability to deduct state and local taxes on new-car purchases, and a variety of tax credits available on hybrid and alternative-fuel cars, there have never been more ways for consumers to take advantage of tax benefits on new-car purchases.

According to a recent survey, 58 percent of consumers who considered buying a new car in the past six months said they would be influenced to buy a new car because of the tax deductions outlined in the stimulus plan. The stimulus package allows any family making less than $250,000 or any individual making less than $125,000 to deduct the local sales and state taxes they paid on any new vehicle purchased after Feb. 17, 2009. The deduction is limited to new cars, light trucks, recreational vehicles and motorcycles that cost less than $49,500.

"With the stimulus plan offering sales deductions on new-car purchases, and a variety of good deals currently on the market, now is a good time for consumers to buy new," Editor in Chief Patrick Olsen said. "Add in the tax credits on many new hybrid and clean-diesel cars, and consumers can take advantage of these various tax incentives."

For consumers looking to buy a hybrid vehicle this year, or for those who purchased a new hybrid in 2008, there are still plenty of tax credits to take advantage of.

In accordance with the Energy Policy Act of 2005, certain cars purchased beginning in 2006 can earn credits of up to $4,000. To be eligible for these credits, vehicles have to fall into one of four categories: fuel cell, advance lean-burn technology, hybrid or alternative fuel. Certain diesel cars also qualify for a tax credit under this act, but most of the cars that qualify are hybrids. There is one alternative-fuel car, the Honda Civic GX, on the list as well.

For some cars, the credit you can claim depends on the exact date you bought the car. That's because the Energy Policy Act of 2005 says that when a manufacturer reaches 60,000 sales of eligible vehicles -- as reported to the government each quarter -- the credits will begin to be phased out. Full tax credits are still available for qualifying vehicles from several automakers, but other manufacturers' credits have been either reduced or completely phased out.

"Right now, the only vehicles you cannot get any tax credit for are hybrids from Toyota, Lexus and Honda," Olsen said.

  • 2009 Aura Hybrid: $1,550
  • 2009 Vue Hybrid: $1,550
  • 2008 Aura Green Line: $1,300
  • 2008 Vue Green Line: $1,550
  • 2007 Aura Green Line: $1,300
  • 2007 Vue Green Line: $650

A complete list of current tax credits for hybrid and alternative-fuel cars can be found at

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