Tax incentives for drivers of Toyota hybrid cars and hybrid trucks will soon go the way of the Dodo. The Congressional production limit of 60,000 Toyota hybrid vehicles has been reached. According to the IRS, this means that credits for Lexus and Toyota hybrids will be reduced to half of the previous year’s credit starting in October 2006. The tax credit will be further reduced to 25% of the original value at the end of 1st quarter 2007. The credit will be phased out completely on October 1, 2007.

All hope is not lost, however, as hybrid vehicle owners can still claim credits, ranging from $250 to $2,600, on hybrid vehicles manufactured by other companies until those companies reach their Congressional production limits. Each company has a production limit of 60,000 vehicles. Once those limits are met, the same phase out imposed on Toyota vehicles will be put in place.

With this in mind, now is a much better time than later to make the plunge into a hybrid vehicle purchase, if you are so inclined. While increased production should lower prices on hybrid vehicles, there is no guaranty that the decrease will be equal to or greater than the tax credits currently offered. Remember: a tax credit is a dollar for dollar reduction in your tax bill. It is deducted directly from your total tax liability, while a tax deduction is subtracted from your income before your tax liability is calculated. This means that a tax credit can be more than three times better than a deduction.