Sep 25 - Knight Ridder/Tribune Business News - Rick Popely Chicago Tribune

Consumers may soon have greater urgency to buy a hybrid gas-electric vehicle, and not just because of $3 per gallon gas.

The federal tax break on hybrid models changes from a deduction to a tax credit. Though the amounts of the credits haven't been determined, many consumers will stand to benefit from the new rules.

But it may pay to buy early because only the first 60,000 hybrid vehicles that each manufacturer sells are eligible for the full benefit.

Once a manufacturer sells those 60,000, the tax credit phases out within about 18 months.

"If you're thinking that the tax credit should encourage other manufacturers to get into the race, then it works," said Therese Langer of the American Council for an Energy Efficient Economy. "This will get the laggards going."

But it means changes for buyers. For hybrids purchased by, taxpayers can take a $2,000 deduction. Eligible vehicles are the Toyota Prius, Honda Insight, Lexus RX400h and hybrid versions of the Ford Escape, Honda Accord and Civic and Toyota Highlander.

The value of the deduction depends on which tax bracket a person is. For someone in the 33 percent bracket, it is $660. Taxpayers can claim the one-time deduction whether they itemize or take the standard deduction.

Starting, the break on hybrids becomes a tax credit, with the entire amount deducted from the amount a taxpayer owes. That amount, however, will vary depending on the fuel efficiency and weight of eligible models.

The Internal Revenue Service has yet to issue regulations on the tax credits, but the American Council for an Energy Efficient Economy (ACEEE) estimates they will range from $3,150 on the Prius to $650 on the Accord.

The Washington-based group culled the numbers from the energy bill passed and signed in August and data available on current hybrids and those expected to go on sale soon.

"We made our best guess," said Langer. "We think it is a good guess, but it can't be taken as the final word."

The final word will come from the IRS, but it won't publish regulations on the credit until the end of this year and would not comment.

"We don't have any official guidance at this time," spokeswoman Nancy Mathis said.

Given that the deduction changes, what advice does the IRS give consumers contemplating buying a hybrid?

"We're not in the business of advising consumers on car purchases," she said, declining further comment.

The ACEEE estimates that under the new rules the Escape Hybrid will qualify for a $2,600 credit with two-wheel-drive and $1,950 with four-wheel-drive. The Civic will get $2,100, the RX400h $2,200 and the Highlander $2,600 with 2WD and $2,200 with 4WD.

Automakers they have their own estimates.

Spokeswoman Martha Voss said Toyota expects the Prius will qualify for around $3,000 but added, "we're hesitant to put a number on it because it depends on how the EPA calculates [mileage] and the IRS writes the regulations."

Honda spokesman Yuzuru Matsuno estimated that the Civic will fall between $2,000 and $2,500 and Accord $1,000 to $1,500.

Toyota is the hybrid sales leader and expects to sell nearly 140,000 in the U.S. this year. Honda is second, with projections of 50,000 for 2005.

Here is how the allotments will work:

Once a manufacturer sells a total of 60,000 hybrids, consumers will continue to receive the full credit in the next calendar-year quarter. But for the six months after that, the credit drops to 50 percent and then to 25 percent for the next six months. After that, it disappears.

Manufacturers have touted the tax deduction as a way to offset the higher price of hybrid models, which range from about $2,300 on the Civic (compared to an EX model) to $11,000 on the RX400h. The huge price difference on the RX400h is in part because it has more standard features than the RS330.But Voss said, that as Toyota's tax credit gets phased out, "Toyota customers will still get a substantial benefit. Even at half the credit, $1,500 on a Prius is still a pretty good deal."

Though some states, such as California and Iowa, offer tax deductions for hybrids, Illinois, Indiana, Missouri and Wisconsin don't.

 

HERE'S A COMPARISON of the EPA fuel economy ratings in miles per gallon in city/highway driving of the gas/electric vehicles now on the market and, where applicable, their gasoline-only counterparts. NA is not applicable.

--Ford Escape 4WD

--33/29 hybrid

--19/22 gas

Honda Accord

--29/37 hybrid

--20/30 gas

Honda Civic

--50/50 hybrid

--30/40 gas

Honda Insight

--57/56 hybrid

--NA gas

Lexus RX400h

--31/27 hybrid

--18/24 gas

Toyota Highlander

--31/27 hybrid

--18/24 gas

Toyota Prius

--60/51 hybrid

--NA gas

Source: Automakers