The American Recovery and Reinvestment Act of 2009 Act establishes a new credit (effective January 1, 2009) for plug-in hybrid electric vehicles. The credit for passenger vehicles and light trucks ranges from $2,500 to a maximum of $7,500 based on the tax code formula. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the total number of qualified plug-in electric drive vehicles sold in the U.S. exceeds 250,000.

Additionally, individuals or businesses who buy or lease a new hybrid gas-electric car or truck are eligible for an income tax credit (for vehicles “placed in service” beginning January 1, 2006 and purchased on or before December 31, 2010). The amount of the credit depends on the fuel economy, the weight of the vehicle, and whether the tax credit has been or is being phased out. Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard qualify for the credit.

Taxpayers may claim the credit for personal use vehicles by completing IRS Form 8910.

Taxpayers claiming the credit for business use should complete IRS Form 3800.

This tax credit will be phased out for each auto manufacturer once the company has sold 60,000 eligible vehicles. Then the tax credit for each company’s vehicles will be gradually reduced over the course of the next fifteen months. Toyota and Honda have already been phased out. Tax credits are still available for Nissan, Ford and GM. See also the IRS's Summary of the Credit for Qualified Hybrid Vehicles for additional information on specific vehicle eligibility.

Alternative-fuel vehicles, fuel-cell vehicles and diesel vehicles with advanced lean-burn technologies are also eligible for tax credits. For more information, see the IRS's Summary of Credits Available for Alternative Motor Vehicles.