Hybrid Car Tax Deductions & Incentives

GM is just now joining the fray with a "mild" parallel hybrid 2004 Chevrolet Silverado that's being aimed at fleets, to be followed by an array of full hybrid models in the 2007 time frame. Mild hybrids like the Silverado use a simpler hybrid system that achieves more modest fuel economy gains in the 10-15% range. On the full hybrid front, both Toyota and Ford are expected to debut 2005-model-year hybrid sport/utility vehicles in 2004 - the Lexus RX 330 and the Ford Escape Hybrid - while many manufacturers like DaimlerChrysler, Nissan, and others are also working on own hybrid models for introduction in the years ahead.

Many hybrid buyers are motivated by such tangibles as fewer tailpipe emissions and significantly higher fuel economy, the latter resulting in decreased annual fuel costs. As an added incentive, buyers of new gasoline-electric hybrid vehicles are also eligible for a "clean burning fuel" federal tax deduction of $2000 if the vehicle is placed in service before December 31, 2003. Under current law, the deduction is incrementally reduced starting in 2004 and expires at the end of 2006. (For details on the deduction, check with your tax advisor or review details on the IRS Web site .

Other financial incentives are sometimes available from air pollution control agencies, state energy offices, and other state and local sources. Additionally, non-financial incentives, such as the ability to drive in carpool lanes with a single occupant, are now being considered in several states including California and Colorado, although federal approval of such use of high-occupancy vehicle lanes is required.