Your Money: Some hybrid credits are about to expire

— -- 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.

More hybrids on the lot

Other automakers have introduced new versions of hybrid vehicles in recent months. Tax credits for IRS-certified Ford Motor and General Motors hybrid vehicles range from $250 to $3,000. Nissan's Altima hybrid, which received IRS certification in January, is eligible for a $2,350 credit. Based on sales volumes so far, auto analysts don't expect these automakers to hit the 60,000 threshold soon.

Unless Congress extends it, the tax credit for all hybrids will expire Dec. 31, 2010.

The tax credit was designed to offset the premium buyers typically pay when they purchase a hybrid instead of a conventional vehicle. But that premium is shrinking, says Philip Reed, consumer advice editor at Edmunds.com, a consumer website.

"Now that we're into the seventh year of the sale of hybrids, prices have come down," he says.

Two years ago, demand for the Prius was so high that buyers had to put their names on waiting lists. Now, Toyota has "quietly reduced the price" of the Prius by lowering the cost of some options packages, Reed says.

And because there's a healthy supply of hybrids, other automakers are offering incentives, too, says Patrick Olsen, managing editor of Cars.com.

A tenuous credit

People buy hybrids for all sorts of reasons: They're concerned about the environment, they want to reduce the country's dependence on foreign oil, or they just think the Prius looks cool.

But if you're motivated by the tax break, you may want to consult with a tax professional before you start test-driving hybrids. If you're subject to the alternative-minimum tax, you're ineligible for the hybrid credit.

The AMT is a parallel tax system that was created to prevent wealthy taxpayers from using deductions and loopholes to wipe out their tax bills. But because it was never indexed to inflation, the number of taxpayers who must pay the AMT has steadily increased.

The only way to figure out whether you'll have to pay the AMT is by doing your tax returns twice, once the regular way and once using the AMT.

That doesn't help you much if you're contemplating buying a hybrid now. But if you paid the AMT in the past and your circumstances haven't changed, you'll probably owe it again. People who live in states with high state taxes, such as California and New York, are also more likely to owe the AMT.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.