Hybrid Tax Advantage
The hybrid tax advantage is something that is much discussed in the auto world. Simply put, the purchase of a new hybrid vehicle comes with a massive tax benefit.
Hybrid Tax Advantage
Shocking as it may seem at first glance, the government tries to modify our behavior by dangling carrots in front of us or whacking us on the nose when appropriate. Don’t believe me? Think it through. What are the taxes on cigarettes these days? They are pretty high because the government doesn’t want you to smoke and eventually become a drain on the health system.
In the world of transportation, the government is now trying to promote fuel efficient vehicles. Hybrid cars certainly fall within this category since they split their time running on both gas and electrical charge. The corresponding effect on your gas mileage can be such that you basically double your miles per tank. Given the improved gas mileage, the government is very excited about hybrid cars. How excited? Well, one only need look to the hybrid tax advantage.
So, what is the hybrid tax advantage? It is a tax credit you get to claim when you purchase a new hybrid from a dealer. Why should you get excited about this? Well, you have to understand the difference between a tax credit and a deduction.
A tax deduction is reduced from your gross income. If you make $40,000 a year, a $500 deduction would reduce your gross income to $39,500. That’s nice, but it ultimately is not going to save you a lot of money when you go to the tax tables and figure out the exact amount of tax you owe. This is where the value of a tax credit becomes clear.
The hybrid tax advantage is so important because you get to claim a tax credit instead of a deduction. A tax credit is applied after you figure out your tax. In our example above, you would start with your $40,000 gross, deduct all your write-offs and then go to the tax table to figure out what you owe. Let’s say you owe $4,000. You would deduct your tax credit of, say, $1,500 from the $4,000, which would give you the final tax amount you owe. As you can see, a tax credit saves you a ton of money.
So, what is the tax credit for buying a new hybrid from the dealer? Well, it depends. The IRS assigns a value to each car model depending on how fuel efficient it is and how many have been sold. The more vehicles that are sold, the lower the tax credit falls. In short, you need to stay on top of the latest IRS notices. You can find many on our tax incentives page.