Hybrids Aren't Hotcakes

The following is reprinted without the permission of Dow Jones or the author of the piece. I got it through my Scottrade account. I've left the author's contact info off so that she won't get spammed, or worse.

Still Time To Grab Tax Perk On Hybrid Cars

By Andrea Coombes

Thanks to the popularity of Toyota Motor Corp.'s (TM) Prius, time is running out to enjoy the full $3,150 tax credit available to those who purchase that hybrid.

That's because the tax credit starts to decline after a car maker sells 60,000 hybrid vehicles, and Toyota moved past that mark almost on the strength of its Prius alone, though sales of its hybrid Camry and Highlander, and two Lexus hybrids, also helped.

Toyota sold 59,270 Prius models from January through the July, bringing its total hybrid vehicles sold in that period to 105,816, according to Edmunds.com, an auto information site, based in Santa Monica, Calif.

"Last month was the second-highest month ever for Prius sales," said Alex Rosten, manager of pricing and market analysis at Edmunds.com. "I think you can assume that a lot of that has to do with gas prices, but also most people have been shopping for a hybrid for a while - it's not really an impulse buy - [and since] there's a waiting list, people want to try to get in now to get the tax credit."

Even if you are only now getting on a waiting list to purchase a Toyota hybrid, you might be able to buy in time to reap the full credit, Rosten said - if someone ahead of you on the list decides against purchasing. For Toyota models, the deadline for buyers to reap the full credit is Sept. 30. Still, expect to pay a premium for your car. In July, the new Camry hybrid was selling for an average of $1,522 above sticker price, while the Prius cost an average of $1,812 above sticker, rising to as high as $3,000 or $4,000 above sticker in some places, including Southern California, Rosten said.

Don't forget that every model comes with a different tax-credit amount, with the Prius' $3,150 the highest. The tax credit on the 2007 Camry Hybrid is $2,600.

For more recent information, also search the IRS page for "hybrid tax credit" and sort the results by "date."

Taxpayers who pay the alternative minimum tax should realize that they may not be able to enjoy the benefit of the hybrid tax credit.

Plus, "the credit will reduce regular income tax liability but not below zero," said Michael Eisenberg, a certified public accountant and personal financial specialist in Los Angeles, in an email message. That is, this isn't a refundable credit.

And, he said, "if you're eligible for multiple tax credits, the hybrid tax credit is taken last, after all other credits [such as] child-care credit, retirement-savings credit. Any tax liability left over after these reductions will be the maximum dollar limit of your hybrid tax credit. If the hybrid tax credit exceeds this maximum dollar limit, the excess is not refundable, and is lost forever."

Car buyers can enjoy the full credit on Toyota models purchased through the end of September. After that date, those who purchase a Toyota hybrid model in the next six months will receive half the credit, and purchases after that will be eligible for one-fourth of the credit. After that, the credit is no longer available.

But there's plenty of time to enjoy the tax credit available on other makers' hybrid models.

Honda's total hybrid sales this year through the end of July total 22,757 vehicles, according to Edmunds.com. "Honda's not even close" to the 60,000 mark, Rosten said.

About 580 of Honda Motor Co.'s (HMC) Insight sold through July (eligible for a $1,450 tax credit), while 18,428 of the Civic Hybrid ($2,100 credit) and 3,749 of the Accord Hybrid ($1,300 credit if the car has updated calibration) sold in that period.

Meanwhile, Ford Motor Co. (F) sold a total of 14,055 hybrid models in that period, 12,154 of its Escape Hybrid (the two-wheel drive is eligible for a $2,600 tax credit and the four-wheel drive for a $1,950 credit), and 1,901 of the Mercury Mariner Hybrid ($1,950 tax credit).

Edmunds.com doesn't have sales figures for General Motors Corp.'s (GM) GMC hybrid vehicles, though the IRS says GMC sold 1,388 hybrid vehicles in the quarter ending June 30. GMC models are eligible for a credit of between $250 and $650.

So despite $3/gallon gasoline, there are still plenty of hybrids out there for people to buy. That bodes well for us as my wife and I are considering retiring my 97 Civic (30-35 mpg), which she uses for work, and getting a new car.

I've insisted that said new car must be a hybrid or some other car that gets equivalent or better gas mileage. She doesn't want anything smaller than what she's in now, so there's a bit of a debate going on. I've suggested that we trade in her 2000 Subaru Outback (20-24 mpg), which I drive most of the time, because I believe that my Civic, with almost twice the number of miles on it, is in better shape. But she doesn't believe that the Civic is safe enough to drive around with the kids because it's pre-LATCH. So, if I want to keep the Honda, I've got to see if the dealership will install the LATCH, an infant car seat restraint system that goes beyond just seat belts.

I'll keep you posted.

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