Your Money: Some hybrid credits are about to expire

The tax credit begins to phase out after an automaker sells 60,000 vehicles.

ByABC News
August 14, 2007, 3:16 AM

— -- If you're considering an end-of-summer vacation, go ahead and unfurl your road maps.

The average price of a gallon of regular gas this week is $2.77, down nearly 23 cents from this time last summer, according to the Energy Information Administration. That means you might be able to add an extra day to your trip, or stay in a motel with premium cable and a pool.

Oil analysts warn, however, that a major hurricane or refinery breakdown could send gas prices sharply higher. In addition, the recent bridge collapse in Minneapolis has prompted some lawmakers to propose raising the federal gas tax to pay for bridge repairs. (President Bush said he opposes the idea.)

One way to protect yourself against future oil shocks: Buy a fuel-efficient car. All the major automakers have rolled out high-mileage cars and trucks, and more are on the way. And if you buy a hybrid a vehicle that combines an electric motor with a gasoline engine you may be eligible for a tax credit when you file your 2007 tax return.

But if you're counting on the tax credit to reduce the cost of buying a hybrid, pay attention to the calendar.

The tax credit begins to phase out after an automaker sells 60,000 vehicles.

Once a manufacturer's sales hit the limit, buyers are eligible for the full credit until the end of the quarter in which the threshold was reached and through the next quarter. Then they're eligible for half the credit for six months. For the next six months, the credit will shrink to 25% of the full amount, then it will disappear.

How this will affect two manufacturers of popular hybrids:

Toyota. If you're planning to purchase a Prius, the most popular hybrid, start looking. Toyota reached the 60,000 threshold last summer. Under the phase-out formula, taxpayers who buy a Prius before Oct. 1 will be eligible for a $787.50 tax credit. But after that date, you won't be able to claim a tax credit for the Prius, or any other Toyota or Lexus hybrid.

Honda. Currently, the maximum credit for Honda's 2007 Civic hybrid is $2,100. But Honda expects to hit the 60,000 mark in the third quarter, says spokesman Todd Mittleman. If that happens, purchasers of Honda hybrids will be eligible for the full credit through the rest of the year. In January, the credit will fall by half, dwindle to 25% of the full amount next July and evaporate at the end of 2008.