Five Percent: Conserve Energy

Climate Change Is Important: Energy Conservation is the First Step

January 2, 2006

Tax Incentives for Hybrids: Deductions and Credits

Category: Policy,Save Fuel,Transportation – Tom Harrison – 8:15 pm

There are numerous tax incentives and rebate programs for using less energy — see the link on this article. The most immediate one is for those of us who purchased hybrid vehicles in 2005 (and earlier); depending on the vehicle, you can take a deduction of up to $2,000 off your income, even if you don’t itemize deductions. Depending on your tax bracket, this could reduce your tax bill by about 1/3 of this amount (around $660) this year.

And procrastinators rejoice — in 2006 the energy bill includes a tax credit for hybrids — up to $3,600. A credit is subtracted from your total tax, not from your gross income, so it’s an actual dollar savings. Read more in today’s Mercury News article.

These incentives are interesting in several ways. The obvious is that we consumers have additional motivation to move towards energy efficient vehicles. But this works for the manufacturers, too — any additional cost associated with making more efficient engines is offset, making them more attractive to buyers. And this is a pretty significant amount of money — our second Prius is due to be delivered in several weeks — after the credit our total cost will be reduced from $23,000 to around $20,000, or about 13% savings. The report indicates that people have been waiting to take delivery and that the long wait for Priuses (Prii?) and other hybrids which has abated recently, is growing again.

But another interesting aspect is that the credit is indexed to the fuel economy of comparable non-hybrid vehicles. So let’s say you’re Toyota or Honda — you do very well this year because your cars are much better than average. But if GM is smart (well, it’s not) it would goose a couple extra MPG out of every car and SUV on the lot by tuning down the existing engines; reduce the “sportiness” but increase the MPG. Yep, they can do that and it would hurt their competition by reducing the benefit of the tax break. So in good American competitive spirit, I say “go for it!”. And if they do, there’s a nearly instant reduction in emissions and gasoline usage. This is the kind of incentive I believe in. It doesn’t hurt that we’ll take the deduction for our 2005 Prius :-)

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