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Tax credits / incentives for hybrids?



  • gagricegagrice Pahrump, NevadaPosts: 31,432
    You are probably right. There are a lot of people that do not research before they buy. I cannot imagine anyone buying a Hybrid before 2006 unless it is deeply discounted. IF they are aware of the tax credits that will be available. Also this new energy bill includes diesel vehicles. So we will have more choices next year in at least 45 of the 50 states.
  • stevedebistevedebi LAPosts: 4,098
    I think the conservation credit was an either/or. Also, I think they may be using the combined mileage, wihch is 56, I think? That is what I based my $1600 on.
  • Here is the results of my research. Obviously, the conclusions depend on the numbers I put in, and whether I understand the bill correctly. I will explain where the numbers come from and how I made the calculations, then if you believe any of the numbers are wrong, you can make your own amendments.

    These analysis is based on purchasing 2005 vehicles (for which we have data) in 2006 (when the tax credits begin).

    Three tables come from this energy bill text, starting on page 1391.

    1) 2002 Model Year Fuel Economy by Inertia Weight Class (pg. 1395)
    Passenger Cars
    lbs. mpg
    1,500 45.2
    1,750 45.2
    2,000 39.6
    2,250 35.2
    2,500 31.7
    2,750 28.8
    3,000 26.4
    3,500 22.6
    4,000 19.8
    4,500 17.6

    2) Credit Amount for Fuel Economy Ratio (fuel economy of hybrid divided by 2002 vehicle in same inertia weight class) (pg. 1398)

    fuel economy ratio: credit
    125%-150%: $ 400
    150%-175%: $ 800
    175%-200%: $1,200
    200%-225%: $1,600
    225%-250%: $2,000

    3) Credit Amount for Lifetime Fuel Savings (pg. 1400)

    Lifetime fuel savings is A minus B, where A is 120,000 miles divided by hybrid's inertia weight class's city fuel economy in 2002 and B is 120,000 miles divided by hybrid's city fuel economy.

    Lifetime fuel savings (gals): credit
    1,200-1,800: $ 250
    1,800-2,400: $ 500
    2,400-3,000: $ 750
    3,000- : $1,000
  • (for Part I, see post above)
    Now, as a post above suggested, I did a google on "inertia weight class" and found some suggestions that for the Honda Civic Hybrid and the Toyota Prius are in the 3,000 IWC. The facts that I read said: (1) round down IW to determine IWC, (2) IW is approximated by adding 300 lbs. to stated (curb) weight, and (3) the HCH weighs 2,732 lbs., and the TP weighs 2,890 lbs. Using these 3 facts imply a 3,000 IWC for the HCH and the TP.

    Also, I found a table that listed the HCH and the TP as 3,000 IWC. Incidentally, the Honda Insight was listed at 2,000 or 2,250 IWC in the same table, depending on the transmission.

    It is not clear to me for table 2 what number to use for the fuel economy of the hybrid. However, since table 3 uses the current city fuel economy, I will use that when calculating ratios used in table 2.

    Finally, here are the calculations:
    the 2002 city fuel economy for the 3,000 IWC: 26.4 mpg
    for the 2005 HCH CVT: 48 mpg
    for the 2005 TP: 60 mpg

    Thus, from table 2:
    HCH CVT: 48/26.4 = 182% --> $1,200 credit
    TP: 60/26.4 = 227% --> $2,000 credit
    Note that the TP barely makes it into the $2,000 category.

    And, from table 3:
    HCH CVT: 120,000/26.4 - 120,000/48 = 2,045 gal saved --> $500
    TP: 120,000/26.4 - 120,000/60 = 2,545 gal saved --> $750 credit
    Note that the TP barely makes it into the $750 category.

    Thus, the total credits are:
    HCH CVT: $1,700
    TP: $2,750

    However, the TP numbers may be too optimistic. A spokesperson for Toyota in a
    USA Today article on the new energy bill said the Prius may qualify for about $2,400.

    I welcome critical evaluation of this analysis.
  • stevedebistevedebi LAPosts: 4,098
    I'm not sure, but the TP may be based on the combined mileage, not the highest mileage. I thought that the Prius Combined MPG was in the low fifties?
  • The document states "a fuel economy", but I can't seem to find out how it is defined. If, as you suggest, it's a weighted average of city and highway driving, then, consulting the EPA numbers, I'll try these numbers:
    HCH CVT: 47 mpg (48 city/47 hwy)
    TP: 54 mpg (60 city/51 hwy)

    The credits from lifetime fuel savings remained unchanged:
    The HCH CVT receives a $500 credit; the TP receives a $750 credit.

    The credits for fuel economy improvement change for the TP:
    Then, from table 2:
    TP: 54/26.4 = 201% --> $1,600 credit

    HCH CVT's total credit remains:
    HCH CVT: $1,700

    And the amended TP total credit is:
    TP: $2,350
  • gagricegagrice Pahrump, NevadaPosts: 31,432
    In you research did you find what incentives they will offer for diesel cars?
  • otis1otis1 Posts: 142
    ugh... politicians....

    Ok so this "vehicle inertia weight class" is a big deal b/c this is what the hybrid mileage is compared to. So I actually looked up 42 usc 7521. NOT ONCE does it ever mention "inertia." So ok, I check out 42 usc 7550 which is titled "Definitions." But guess what, no "inertia" mentioned at all. I'm thinking someone meant to write "Gross Vehicle Weight Rating" instead of "inertia weight class" If you look at the bill, p 1402, line 4-6, "blah blah passenger automobile or light truck and which has a GVWR of not more than 8500 lbs ..." and the table listing the 2002 city mileages which you're suppose to reference, goes up to 8500 lbs. hmmmm, I gotta wonder if I can use GVWR for my calculations.

    IF that's the case, then a HH AWD should be eligible for $1600 + $1000 credit using a GVWR of 5500. What's interesting is the HH FWD- using the same assumptions, it actually qualifies for the $2000 fuel economy credit IF it uses the "Passenger Automobile" table instead of the "Light Truck" table. I'm also just using City MPG since that's whats labeled in the table headers.
  • jveatchjveatch Posts: 2
    I have been unable to determine if the new energy Policy Act of 2005 allows one to use a tax credit in purchasing a 2006 Toyota Prius prior to January 1, 2006. It seems some parts are effective the moment President Bush signed the new law. In the Section 1341 of HR6 it referes to "a new qualified hybrid motor vehicle placed in service by the taxpayer during the taxable year ..." Does that mean a 2006 hybrid can use the tax credit in 2005 if purchased and placed into service in 2005, like maybe late September or October? If this is not the case, then I would think the automobile dealers will have a very difficult time selling the new year models during the last 3 or so months of 2005.
  • Anyone know how this limit on the # vehicles for which the tax credit is applicable, is going to be implemented? How does a buyer know that his is one of the 1st 60k vehicles sold by the manufacturer after the bill's effective date? I suppose if someone buys 2 eligible vehicles, he can't claim the credit twice. But his 2nd credit would be lost; that credit wouldn't go to 60001st buyer?
  • gagricegagrice Pahrump, NevadaPosts: 31,432
    Welcome to the forum. That is a darn good question that I have had also. When it gets down to the wire and a dealer in CA sells number 60k the same time a dealer in NY sells # 60k, who gets the tax break. Like was said before I think this was put in to equalize the playing field. Right now Toyota is the only one that would be able to build 60k hybrids in one year. Honda my gear up for that kind of sales. None of the Big 3 will sell that many in 2006. Unless it includes diesel cars with high mileage. Then all the majors will get involved.
  • otis1otis1 Posts: 142
    The law is kinda hard to read, but the credit is phased out the 2nd quarter after a manufacturer sells 60k hybrids. So let's say from Jan-Mar, toyota sells 59,999 hybrids. Then toyota presumably hits their quota during Q2. So anyone who buys their hybrid between Q1 through Q3 gets the FULL credit. Q4 and Q1 07 get 50% credit, and Q2 and Q3 07 get 25% credit.

    You don't have to be one of the first 60,000 hybrids- you just have to buy it within 3-5 months after the 60,000th hybrid is sold to get the FULL credit.
  • gagricegagrice Pahrump, NevadaPosts: 31,432
    That makes a lot more sense than trying to pin down 60k cars. Thanks for the research.
  • jveatchjveatch Posts: 2
    But the question is still "can you buy a Prius after the President signed the Energy Policy Act of 2005 (on August 8th) and apply it to the 2005 tax year if you put the car in service during 2005 but after August 8th. I didn't see any quotas in the Act. Are you sure you aren't mixing up the Federal Tax Credit with the State of California policy?
  • Why does the vehicle have to be a 2006 model? At the end of section 30B (amendment of section 1341): "the amendments made by this section shall apply to property placed in service after 12/31/2005, in taxable years ending after such date". I read that to mean that any new qualifying car of any model year bought any time, but placed in service in 2006, would be eligible for the credit. Too liberal a reading?
  • otis1otis1 Posts: 142
    check out section (f) which starts on p1417. There it discusses when the credit starts (after 12/31/05) and the limitations (quota). As I interpret it, it doesn't matter when you order you car, it only matters when you sign on that dotted line and take delivery of your car. so if you order you prius in dec, and it shows up in Jan, then you're ok. i have no idea what the california policy is since I don't live there.
  • mirthmirth Posts: 1,212
    so if you order you prius in dec, and it shows up in Jan, then you're ok.

    I predict a slooooowwwww Nov and Dec for Prius sales, lol.
  • part f on pg 1417 gives the date at which they start counting towards 60000. But since a previous poster clarified that the 60000 figure is to determine the phase-out quarter, not the exact number of buyers eligible for 100% credit, the date in part f isn't the effective date of the tax credit (end of section 30b pg 1426). They do happen to be the same.
    What's the definition of "placed in service"? If the vehicle is registered as non-operating, is that considered "in service"?
  • stevedebistevedebi LAPosts: 4,098
    " If the vehicle is registered as non-operating, is that considered "in service"?"

    Just out of curiosity, why would you buy a new Prius and register it as non-operating?
  • falcononefalconone Posts: 1,726
    I seriously doubt that, especially with gas prices at current levels. Not everyone is well informed about tax credits. You'd be surprised. If there are deals, people will bite and forego the credit. Watch and see! Jan will see FULL list on these pups. Ain't no free lunch Ian.
  • I, too, have been unable to ascertain whether a September 2005 purchase of a 2006 hybrid model (in this case, the all new 2006 Civic Hybrid) qualifies for the existing (2005) federal deduction, the new law imposed by the recent energy bill, or does it "fall through the cracks"? It seems like it will clearly not be eligible for the new enregy bill tax credit, given the designated effective date.

    Will the list of eleigible cars for this years existing deduction law be updated once the new 2006 Civic Hybrid (and for that matter the 2006 Prius) are out?

    Also, does anyone know if these dedutions offer a break for leasing such cars? I don't think so, because what I've read uses the word "buy" or "purchase".


    RKE :confuse:
  • Thanks for posting this article - it just answered my own question submitted minutes ago, that the new tax credit will apply to leases as well, but will have to be a five-year lease. The current deduction does not apply to leasing. :blush:

  • kernickkernick Posts: 4,072
    I remember from our chief accountant at work that a vehicle lease with an option to buy at the end is treated just like an outright purchase.

    I have to ask you though, unless you have already paid a substantial amount of money as a deposit, why you'd consider a Sept. '05 purchase. You answered your own question with the "effective date". You'd get the current tax deduction if you bought it in Sept. Unless you are car-less, wait until Jan. '06

    I also don't think an order counts as a purchase. If you need a contract and deposit with your order, I'd insist that part of the deal, is that the dealer would rip up the deposit contract, and rewrite the contract in Jan. just as if you just walked in and initiated the deal.
  • Does the vehicle you are buying in 2006 have to be a 2006 model year? I ask because a Toyota dealership told me they might not get 2006 Prius until late January early February. Could I buy a brand new 2005 Prius in January of 2006 and still get the tax credit? Does the model year really matter or is it just when you take possession of the new car?
  • stevedebistevedebi LAPosts: 4,098
    You must take delivery of the vehicle after Dec 31, 2005 to get the credit. It can be any model year so long as it is new.

    A purchase in Sep 2005 would net the current tax deduction, I think $1500, which is much less valuable than a tax credit.
  • larsblarsb Posts: 8,204
    quote stevedebi-"This statement is still true, they have to sell to have an impact on the environment, and cost is still one of the biggest detriments to hybrid sales. Rather good comment, I should think. At the moment, hybrids make up maybe less than 1% of the market annually?"-end quote

    Last reported totals, Toyota has more than 400,000 hybrids on the road in the world, Honda has more than 100,000.

    We are on pace to sell 185,000 in the USA alone this year.

    USA market share ALONE BY ITSELF has no relationship in and of itself to environmental impact. What I mean by that is regardless if we sell 50 million non-hybrids, selling 185,000 hybrids is a GOOD thing for the environment,


    Every single hybrid on the road means cleaner air, less greenhouse gases emitted, and usually means a reduced fuel demand for THAT owner, which is in turn good for all of us.

    (Dang we are SO off topic - anyone have suggestions as to where we could continue this before we get whacked?)
  • stevedebistevedebi LAPosts: 4,098
    "USA market share ALONE has no relationship in and of itself to environmental impact."

    I'm sorry, I have to disagree. Of course individual sales are good - for all higher MPG cars, not just hybrids. But selling millions of cars annually (I seem to remember 14 million as the number in the US) that get an average of 21 MPG (if that) has a far greater (detrimental) environmental impact than selling 100K or even 150K hybrids.

    As many people have noted, the greatest problem is getting people out of those large, gas guzzling SUVs. That means - less market share for them...

    Your 400K hybrids on the road are contrasted to around 50+ million sold in the same period, many of them gas guzzlers, which have been one of the US segments largest sellers.

    And now back to our regularly scheduled forum, which is about MSRP and hybrids...
  • tdohtdoh Posts: 298
    Rhetorically speaking--what's worse, as far as traffic and pollution are concerned--one gas-guzlling SUV with 5-6 occupants...or 5-6 solo Prius drivers? I laugh at the absurdity of our government passing legislation permitting solo occupants of certain hybrid vehicles to drive in carpool how does this do anything to reduce congestion, I ask? many of you current/pending hybrid owners would have bought (or, consider buying) one if the hybrid tax deduction/credit wasn't offered? Take away the tax deduction/credit and the difference in savings between owning/operate a hybrid vs. a non-hybrid won't be as attractive...
  • larsblarsb Posts: 8,204
    quote tdoh-'permitting solo occupants of certain hybrid vehicles to drive in carpool how does this do anything to reduce congestion, I ask?"-end quote

    Aha, I answer:

    It's not intended to reduce congestion. It's intended as an incentive to encourage people to buy more hybrid cars, which thus reduces air pollution. Allowing single person hybrids to use the HOV lanes is not the greatest idea in the world, but it's original GOAL is unquestionably good and correct.

    quote tdoh-" many of you current/pending hybrid owners would have bought (or, consider buying) one if the hybrid tax deduction/credit wasn't offered?"-end quote

    Again a sparkling answer:

    That number would be "100% of the hybrid owners who bought a USED hybrid" in the last three years. That group includes myself. I bought a hybrid with 4823 miles on it, and since it was not purchased by me "for it's original new use" I do not receive a tax credit. Nor do any other of the tens of thousands of people who have purchased "pre-owned" hybrids. The tax credit is only for "purchased new" hybrids.

    Hybrids are not perfect. If you compare them to the cleanliness of a strictly CNG car, they suffer environmentally. But they are FAR better than the other alternative, dirty stinky diesel, and they are a stepping stone to the next great breakthrough, whether that be Hydrogen fuel cells or whatever.
This discussion has been closed.