Is the federal government's "hybrid vehicle tax credit" worth it?

Question

I'm a single guy, no dependents, earn $27,500 a year. Will it really be worth it for me to invest in a new Prius for the sake of the tax credit?

I'm not worried about car payments because I have excellent credit.

Answer 1

Well, the US Federal Income Tax credit for Toyota/Lexus is still available. It hit the trigger point last year to begin reducing in amount depending on when you purchase your new Toyota/Lexus hybrid, but did not "run out" last year. The amount drops to zero for purchases on/after Oct. 1, 2007. The amount also depends on the hybrid model you purchase, and if you are subject to AMT.

Purchases now through Sept. 31, 2007 for a new Toyota Prius are eligible for a US Federal income tax credit of $787.50. (less if you hit AMT - consult a tax professional (which isn't me!).)

http://www.irs.gov/newsroom/article/0,,id=157557,00.html
http://www.toyota.com/prius/tax.html

Used Prius do not qualify for the credit, and the leasing company
gets the credit if you lease...

Individual states or cities may offer incentives as well (income tax credit or a deduction, reduced sales tax, free metered parking, reduced tolls, single-occupant HOV lane usage, etc.)
http://autos.groups.yahoo.com/group/toyota-prius/links/Financial_000963256550/

Hybrids do cost less in the long term than their conventional counterparts. (Intellichoice used a 5 year ownership comparison) See:
http://www.intellichoice.com/press/Hybrid-Survey-2006
http://www.intellichoice.com/carBuying101/HypeOverHybrids

and recently was listed by Consumer Reports as one of its 10 best bets for a car to own over the long term:
http://www.consumerreports.org/cro/cars/tire-care/making-your-car-last-10-07/pick-a-car-for-the-long-run/200k-long.htm

I'll note that there was a mathematical error in the initial publication of Consumer Reports' hybrid vehicle cost analysis, which a retraction was published later... http://www.msnbc.msn.com/id/11637968/
In the corrected version, the Prius does come out cheaper in 5 years.

Since the production for the Prius is up, and very few dealerships have lines anymore (most have Prius on the lot, many at a discount). Even when the NHW20 Prius was new and in high demand, only a few slimy dealers sold them at rediculous markups (most sold at MSRP, few at less than MSRP). Search around for a deal - you'll find one if you're willing to expand to several dealers.

When the NHW20 Prius first came out, initial purchasers in late 2003 through 2004 may have actually made money (used it as an investment) by selling it barely used - demand was so high and supply was short, so some did sell their used cars at a heavy markup to inpatient people. But a car as an investment vehicle is very uncommon, as it is usually a depreciating asset. However, in the US, the Prius depreciates very slowly.

The Prius was ranked in the top 10 (and best in class) for resale value in 2007 by Kelley Blue Book:
http://www.kbb.com/kbb/Advice/GenericContent.aspx?ContentUniqueName=KbbWebContent:912
and also in the top 10 for least depreciation in 2006 by Consumer Reports: http://www.consumerreports.org/cro/cars/news/october-2006/top-10-best-and-worst-cars-in-depreciation-10-06/overview/0610_top_10_best_and_worst_cars_in_depreciation.htm

If the only reason for you to buy a hybrid is for the US Federal tax credit, then the chances are that no, the tax credit is not worth it. If, however, you are going to be purchasing a new vehicle anyways, then the benefits of going hybrid will be worth it over time. As an investment, definitely not.

Answer 2

Nope. The credit ran out on the Prius over a year ago. With your income your tax bill isn't all that high and that credit is non-refundable.

Most vehicles that are still eligible for the credit don't get a whole lot. Even when the Prius caught the full credit the higher cost for the car -- often sold at a significant premium -- didn't make the fuel savings worthwhile for most folks even when the credit was taken into consideration. Consumer Reports calculated the break-even period at nearly 8 years of fuel savings, not a very good deal.

Answer 3

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