New hybrid owners who recently purchased a Toyota or Lexus hybrid, and expect to get some relief on their income taxes, could be disappointed. The Internal Revenue Service has discontinued the federal tax credits for all such vehicles—including the flagship Prius—as of Oct. 1, 2007. Toyota Motor Corporation has hit a legal cap in the number of vehicles sold that can offer the credit. Only hybrids purchased before the Oct. 1 deadline are now eligible for the incentive.

According to IRS rules, the tax credit for new hybrid vehicles begins to phase out when an automaker sells 60,000 hybrids. Toyota hit the magic number last summer, which initiated the beginning of the phase out process. Honda recently reached the mark of 60,000 hybrids sold, and will now start their phase-out into next year. GM, Ford, and Nissan are not expected to reach cap before 2009 (when the incentive laws will be reconsidered or entirely discontinued).

Customers who bought any one of the five Toyota and Lexus hybrid models between April 1 and September 30 of this year are eligible for tax credits ranging anywhere from $450 for the Lexus LS 600h L to $787.50 for the Toyota Prius. The reduction of tax credits for Toyota hybrids, which began phasing out in 2006, have apparently had little effect on sales of the carmaker’s hybrids—which continue to dominate the hybrid market.


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