Lose the Clunker
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Not only can you save money on gas by investing in a more fuel-efficient car, but you can also qualify for a federal tax credit.
The highly anticipated Chevrolet Volt, set for production in November, is expected to come with a fairly steep price tag of $40,000. However, the car also qualifies for the maximum tax credit of $7,500 for green vehicles, bringing the price down to $32,500.
But the tax breaks for fuel misers like hybrids and the Volt are available for a limited time. Once an automaker has sold 60,000 vehicles, buyers qualify for just 50 percent of the vehicle's original tax credit after a certain period of time. So assuming Chevrolet sells 60,000 Volts, the credit will then fall to $3,750. In subsequent quarters, the credit drops to 25 percent and then is phased out completely. So the purchase of a 2010 Toyota Prius will not qualify for a federal tax credit because that credit expired in 2007.
However, fuel-efficient vehicles that do not qualify for federal tax breaks may be eligible for state ones.
