Tax Credits for Heavy-Duty Hybrids

Blog | January 01, 2009 - 10:30 am

The energy bill provides tax credits for heavy-duty hybrid vehicles in the period January 1, 2006 through December 31, 2009. The credit amount depends on the weight class of the vehicle, its fuel economy relative to a comparable conventional vehicle, and the incremental cost.

A hybrid vehicle's incremental cost is defined as the amount by which the manufacturer's suggested retail price of the hybrid exceeds that of a "comparable" vehicle; but it is capped by class:

Gross vehicle weight (GVW) rating
Maximum qualified incremental cost
8,501-14,000 pounds
14,001-26,000 pounds
> 26,000 pounds


The fraction of the incremental cost (up to the maximum allowed) that the credit will cover is determined by the improvement in city fuel economy:

Improvement in city fuel economy
Hybrid credit as percent of
qualified incremental cost
At least 30% and under 40%
At least 40% and under 50%
At least 50%


So, for example, the most efficient 20,000-pound hybrid truck could receive a credit of $6,000.

The vehicle must also meet a threshold value of "maximum available power," a measure of the percentage of total vehicle power available from the rechargeable energy storage system of the vehicle. For a vehicle of 8,500 to 14,000 pounds GVW, the requirement is 10 percent maximum available power; over 14,000 pounds, the requirement is 15 percent. This is to ensure that a qualifying vehicle incorporates substantial hybrid technology. The language does not specify the type of hybrid; both electric and hydraulic hybrids, for example, may qualify.

In 2007, the IRS issued guidance (Notice 2007-46,, which sets out procedures for manufacturers to certify a vehicle as an eligible heavy-duty hybrid and the amount of the credit for that vehicle. While the credit depends upon the hybrid’s fuel economy relative to that of a comparable conventional vehicle, there is no standard fuel economy test procedure in place yet for heavy-duty vehicles. Therefore, manufacturers need to assign fuel economies to their vehicles, using an approach “substantially similar” to one used by the federal government or the State of California to measure fuel economy or emissions for some class of vehicles. Once IRS  acknowledges a vehicle credit, the manufacturer can certify it to purchasers.

As of December 2008, seven manufacturers had certified tax credits for at least one truck or bus model; credits thus far range from $3,000 to $12,000.