Hybrid credit gone for Toyota, fading fast for Honda
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In June 2006, Toyota sold its 60,000th hybrid. That included not only the Prius, coveted by celebrities and not-so-famous drivers alike, but also versions of the automaker's Camry, Highlander and luxury Lexus models.

In total, 13 Toyota/Lexus hybrids were credit-certified. And under the credit guidelines, the tax break phased out for all of those vehicles, not just the popular Prius.

In effect, earlier buyers of hybrids tend to receive the greater tax rewards. That's particularly true once a manufacturer hits the 60,000 sales mark. The longer you wait, the more your credit is reduced, until it disappears entirely.

This table shows what various buyers of a Prius, which had an original credit of $3,150, faced as they bought their particular autos at different times.

Tax credit events and deadlines for Toyota Prius buyers

And while the table uses the Prius' dollar amounts, the percentage limits apply to all Toyota or Lexus hybrids bought during the five post-60,000-sales quarters. (In other words, dollar amounts vary with the model.)

Now Honda buyers will have to do similar phaseout math on their 2008 returns for any purchase made this year. The original, full-credit amounts for the 15 eligible Honda vehicles still applies for 2007 purchases and tax filings, but the tax breaks for each of the carmaker's hybrids were cut in half for the first six months of this year. The next phaseout level (25 percent of the original credit) will kick in July 1 and run through Dec. 31.

Some things are constant
Although the various credit amounts are different for each make and model and change depending on overall manufacturer sales, there are a couple of constants when it comes to the alternative fuel/hybrid vehicle credit.

First, pay attention to dates, both when you buy the hybrid and when you actually take possession of it. When there was a rush a couple of years ago to get the full credit on a Prius, the "placed in service" requirement was interpreted as the date the buyer took actual possession of the hybrid. However, the IRS subsequently clarified the legislative language and issued guidance that the credit amount would apply as of the date of purchase. The placed-in-service date, howerver, remains applicable as to which year's tax return the credit can be claimed.

For example, if you purchased a full-credit Honda on Dec. 31, 2007, and drove it off the lot that day, you would have claimed the credit on your 2007 tax return. If you bought the vehicle in December 2007 but didn't take possession until February 2008, you would claim the full credit for 2008, the year in which the vehicle was placed in service.

Similarly, if you purchased a Honda on June 30, that would entitle you to half the original credit amount on your 2008 tax return, even it you didn't pick up the vehicle from the dealer until mid-July, when the credit had been cut yet again.

Secondly, the only taxpayer who can claim the credit is the vehicle's original owner. And the qualifying auto must be new; the credit does not apply to a used hybrid.

Finally, while the credit can help you reduce your tax bill, it has its limits. It is a nonrefundable credit and its name means just that. It can help you zero out your tax bill, but it won't get you a check from Uncle Sam.