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The spike in energy prices in 2005 spurred many manufacturers to introduce more hybrid vehicles than ever before. Aside from the desire to avoid being gouged at the gas pump, buyers of hybrids have been enjoying a hefty tax cut in recent years thanks to the clean fuel deduction. The deduction, which expired at the end of 2005, allows taxpayers to claim among their federal tax deductions a $2,000 deduction for the purchase of a new hybrid vehicle. The clean fuel deduction is being replaced in 2006 by a tax credit of up to $3,400 for the first 60,000 new energy efficient vehicles sold after January 1, 2006. The amount of the credit depends on the fuel-efficiency of the vehicle purchased.
For 2006, the credit only applies to the first 50,000 cars of a given model sold. Be sure to confirm with the dealer that the car will get the 2006 tax credit.