Don't Mess With Taxes

The IRS has certified three 2007 Hondas as eligible for the Alternative Motor Vehicle tax credit.

As regular readers know, this is the tax break that took effect on Jan. 1, 2006, and provides a credit instead of deduction for cars that meet certain environmental standards.

Since a credit, which provides a dollar-for-dollar reduction of your tax bill, is better than a deduction, which reduces your taxable income and then should lower you tax bill, the change is welcome. What isn't welcome is the complexity of the credit.

The tax break is calculated for each eligible vehicle and how many each manufacturer sells is factored in, too. In short, popularity has its price, literally.

The best selling hybrids produced by Toyota have already seen their tax credits cut in half. Meanwhile, eligible vehicles made by Honda, Ford and GM still carry the full tax credit.

You can read my previous blog items on the tax break here (this story will show up first, so just keep scrolling down). I also wrote this article for Bankrate.com explaining how the credit works.

If you're in the market for a Honda, you'll still get the full available credit for the purchase. And now you have more of the Japanese car maker's products to choose.

Classified as tax credit-worthy are the 2007 model year:

• Honda Civic Hybrid CVT, worth a $2,100 credit;
• Honda Accord Hybrid AT, worth a $1,300 credit; and
• Honda Accord Hybrid Navi AT, also worth a $1,300 credit.

Since the total number of qualifying Honda hybrid vehicles sold as of Sept. 30 was 28,408, these credit amounts will remain in effect until at least March 30, 2007.

And the full tax breaks could last even longer, depending on how many (or few) hybrids the company sells by the end of the year.