In order to help stimulate demand for hybrid cars, as well as reward tax payers for purchasing such cars, there is a tax credit available for owners of certain hybrid vehicles. Like most tax code, the credit is not straightforward and has many rules associated with it.
The Energy Policy Act of 2005 was passed by Congress as part of national energy policy and included many provisions not related to hybrid cars. The Act did contain a tax credit for tax payers who purchased "Qualified Hybrid vehicles." Because American car makers had fallen so far behind foreign car makers in the production of hybrid vehicles, there was a concern from certain lawmakers that the credit would harm domestic car sales, so the credit was limited so that only a certain number of cars from each manufacturer would qualify.
The purpose of the hybrid tax credit for the Toyota Camry and other vehicles is to stimulate the purchase, and thus the production, of more fuel efficient cars by rewarding buyers with a tax credit. In addition, the tax credit gives automakers and dealers another method of selling cars by allowing them to ask customers to consider offsetting any price increase by lowering their taxes.
In order to qualify, the vehicle must be purchased before December 31, 2010. Furthermore, the vehicle must have been placed in service after December 31, 2005.
The Toyota Camry Hybrid tax credit is actually no longer available to new purchasers. If the Toyota Camry was purchased and placed in service after September 30, 2006 it is only eligible for 50% of the credit. If the Camry was purchased after March 31, 2007 then is only eligible for a 25% credit. If it was purchased after September 30, 2007, then is not eligible for any tax credit.
The full tax credit for the 2008 Toyota Camry Hybrid was $2,600 for 2007 filers; however this was reduced under the phase out provisions. As noted above, no tax credit will be available for filers in 2008 who purchased a Toyota Camry Hybrid. For Toyota Camry Hybrid purchases made previously, the tax credit was $2,600 for those who purchased between 1-1-06 and 9-30-06. It was $1,300 for purchases made between 10-9-06 and 3-31-07. It was $650 for purchases made between 4-1-07 and 9-30-07.
Since no hybrid tax credit is allowed for any new purchases, it may be in the buyer's interest to look at other hybrid vehicles. There is no guarantee that other cars are as good as the Toyota Camry Hybrid for the purchaser. Note that Honda and Lexus vehicles are also subject to reduced tax credits.