Tax Edge

The IRS announced that the phase-out of the tax credit for hybrid automobiles and light trucks built by Ford Motor Company began with purchases made after March 31, 2009.

You may not know it, but if you had purchased a new 2010 Ford Fusion Hybrid before April 1, the IRS would have paid you $3,400 for being such an energy-efficient big spender. Today, Uncle Sam will still pay you to buy the same Ford Fusion, but now you'll only get half the payment, or $1,700. Why is this so?

In its Energy Policy Act of 2005, Congress required the IRS to offer you a tax credit for as much as $3,400 (more often in the range of $1,350 to $3,000, depending on make and model) for buying a new car for your family or business. Of course, to claim this financial bonanza, you would have to buy the type of car that Congress tells you to buy - in this case, a hybrid gas/electric vehicle. The actual amount of the tax credit for any specific model is based on energy efficiency ratings and certification by the IRS.

However, Congress didn't want to pay us for our car purchases forever. Therefore, they planned for the phase-out of the tax credit on specific makes of hybrid vehicles once their manufacturers reached cumulative sales levels of 60,000 units. Ford Motor Company reached this 60,000 threshold for hybrid sales in the last quarter of 2008, which means that the phase-out of the tax credit on Ford products began with purchases made on and after April 1, 2009.

The tax credit on qualifying Ford hybrids has been cut in half for purchases occurring from April 1 through September 30, 2009. For purchases occurring from October 1, 2009 through March 31, 2010, the tax credit will be cut in half again (to 25 percent of the original credit). Thereafter, no tax credit will be available on Ford products.

Ford is the third manufacturer to reach the phase-out threshold. Toyota/Lexus and Honda not only reached the threshold level, they have completed the phase-out period, so the tax credit is no longer available for purchases of their products. General Motors, Chrysler, Mazda and Nissan continue to have products that qualify for the hybrid credit. For an up-to-date list of qualifying hybrids, check the IRS website under "Alternative Motor Vehicle Credit."

Following is a list of the original tax credit amounts (prior to phase-out) for Ford and Mercury products for model years 2008-2010. These amounts are subject to 50 percent phase-out as of April 1, 2009, and further phase-out in the future:

Posted April 27, 2009.