Hybrid cars
If low emissions and fuel consumption don't sway you toward a hybrid, the tax incentives might. Through 2005, buyers of hybrids have been allowed to take a $2,000 deduction on federal income taxes. As of January 1, 2006, the tax incentive gets a little more complicated, calculated on the basis of each model's fuel economy and emissions. But the incentive takes the form of a tax credit, meaning the dollar amount gets subtracted from the total income tax payment. As an example of the new formula, the Toyota Prius should qualify for a $3,150 credit, while the Ford Escape Hybrid qualifies for about $2,600, according to the Hybrid Center. The federal tax credit applies only to the first 60,000 hybrids sold from a manufacturer, so companies that produce a lot of them, such as Toyota, will run out of tax incentives quickly. Also, many states have incentives for purchasing hybrids, such as Colorado, which uses a formula that gives Prius buyers $3,434 off their state income tax.