Don't Mess With Taxes

If you bought or are planning to buy a Honda hybrid this year, it could pay off more than just reducing your gasoline bill.

It also could cut your 2006 tax bill.

The IRS today announced that seven Honda autos meet the requirements of the Alternative Motor Vehicle Credit. This tax credit for hybrid vehicles is available on your 2006 return for vehicles you buy/bought on or after Jan. 1.

The Honda vehicles now eligible for this tax credit and the amounts you can get back on your return are:

• Civic Hybrid CVT Model Year 2006 -- a $2,100 credit
• Civic Hybrid (SULEV) MT Model Year 2005 -- a $1,700 credit
• Civic Hybrid (SULEV) CVT Model Year 2005 -- a $1,700 credit
• Insight CVT Model Year 2005 -- a $1,450 credit
• Insight CVT Model Year 2006 -- a $1,450 credit
• Accord Hybrid AT Model Year 2006 -- a $1,300 credit*
• Accord Hybrid AT Model Year 2005 -- a $650 credit.

*If you buy or bought a 2006 Accord Hybrid AT without updated control calibration, your credit will be only $650.

The new hybrid tax credit replaces the $2,000 deduction that had been available for clean-fuel vehicles purchased before Dec. 31, 2005.

If you're bemoaning the tax fact that your new Honda Civic Hybrid SULEV -- that's a Super Ultra-Low Emission Vehicle in case you didn't know. I didn't. I had to look it up! -- only offers a $1,700 credit instead of the old $2,000 deduction, stop right there. The credit is better.

Here's why. A deduction reduces the amount of income that's taxable. Less taxable income usually means a smaller tax bill. But a credit reduces your actual tax-due amount.

So if you owe $2,000 and you have that $1,700 hybrid credit, your bill now is only $300.

If you claimed a $2,000 deduction for the auto, however, that deduction would only reduce your tax bill, if you're in the 25 percent tax bracket, by $500. 

Eleven other vehicles already have been certified as credit eligible. You can find that list, as well as details on the hybrid credit and its limitations (for example, it's fully available for only the first 60,000 models that each manufacturer sells) in this earlier blog post.

Happy hybrid motoring and tax cutting!