The Energy Policy Act - The Clock is Ticking on This Tax Break

If you want in on the tax break of an environmentally friendly car, now is the time to act. The government is only willing to go so far in encouraging you to help save the planet, and the clock is ticking.

In 2005 a law was passed that entitled the buyers of certain environmentally friendly cars to a tax break. This law is called the Energy Policy Act, and it represents the U.S. government's concern for the global warming trend. Car buyers are entitled to this particular tax break if they buy a hybrid or alternative fuel vehicle, a fuel cell vehicle, or an advance lean burn technology equipped vehicle. The tax credit applies to vehicles purchased or placed in service on or after January 1, 2006, and is available only to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased, the company which is leasing the vehicle can claim the tax credit.

At the moment, the hybrid is the only vehicle that is available to the public, and there is only one fuel-cell vehicle in the United States.

The downside to this ecologically friendly law is that it states that when a certain manufacturer sells 60,000 units of the car that is eligible for the tax credit, the tax credit will begin to be phased out. After the car manufacturer reaches the 60,000 mark the tax credit will be cut down by half every four months until there is no longer a tax credit available for these vehicles. In other words, if you are planning to buy an ecologically friendly car it is a good idea to ask the dealer to find out whether the particular car is still eligible for tax credits - or how many percent of the original tax credit will be made available for them.