Toyota and Lexus Tax Credits for Hybrids Will Soon Be Cut in Half, and Disappear Entirely by October 2007

WASHINGTON, D.C. – Toyota Motor Corp. has hit the production limit — 60,000 — on vehicles eligible for a special tax credit designed to encourage more buyers to choose gas-electric hybrids. Toyota spokeswoman Martha Voss said that the automaker sold its 60,000th such vehicle in May. That means tax credits for Toyota and Lexus hybrids will be cut in half for drivers who purchase their vehicles beginning in October, Voss said. The $3,150 credit for the Toyota Prius, the largest hybrid tax credit available, would be reduced to $1,575. Six months later, beginning next April, the tax credits will shrink to one-quarter of their original value. They will disappear by October 2007. Taxpayers could still claim a full tax credit for purchasing hybrids made by other manufacturers, such as Honda Motor Co., Ford Motor Co., and General Motors Corp., until those manufacturers trigger the credit limits or the tax break expires in 2011. The tax break lets buyers claim a credit worth up to $3,400 for purchasing new hybrids, but the law limited that tax credit to the first 60,000 vehicles that a manufacturer produces. After the manufacturer hits that limit, the full credit is available only through the next quarter. The credit then shrinks to half its value for six months, and then to one-quarter for another six months, before disappearing entirely. Toyota hybrid sales have outpaced other hybrid manufacturers. The IRS, which tracks hybrid production for taxpayers, certified that Toyota sold 41,779 hybrids from January through March this year. During the same period, Honda sold 9,072 hybrids and Ford sold 6,192. President Bush asked Congress to make all hybrid vehicles sold this year eligible for the tax break, one element of a proposal to reduce oil and gas consumption. Yet, Congress has yet to act on this proposal.