A Hybrid Credit, Courtesy of the Energy Bill

I've written previously about tax advantages of purchasing a hybrid vehicle. The attractive tax aspects of these vehicles were enhanced by the energy bill signed by President Bush on my birthday, August 8.

The energy bill replaces the old deduction with two new credits for the purchase of a hybrid under 8500 lbs GVW. The credits vary based on the efficiency of the hybrid vehicle. For the first credit, fuel efficiency is compared to the 2002 average fuel efficiency for a vehicle type (car or light truck) and weight class. This credit ranges from $400 for a vehicle that gets at least 125% of the 2002 average, all the way up to $2,400 for one with average mileage 250% of 2002.

The second credit is based on the 'Lifetime Fuel Savings' of the vehicle, which they calculate as the estimated number of gallons you'll save over a 120,000 mile life. This credit adds between $250 and $1,000 (available when a vehicle should save 3,000 gallons over a lifetime).

As you can see, the total credits here can be as much as $3,400, and they're a pain to calculate! I suspect that vehicles will eventually be prequalified for a certain credit amount, and you'll know that amount from the dealer when you purchase the vehicle. Still, these credits are a nice enhancement from the $2,000 deduction (not credit) that was previously the code.