The high price of gasoline has many people thinking about buying more fuel-efficient vehicles. In addition to having improved gas mileage, these vehicles also may qualify for tax credits. Did you buy a hybrid car in 2007? Are you planning on buying one in 2008?

There are four types of alternative vehicles for which credits may be available. Qualified hybrid vehicles combine an internal combustion engine with a rechargeable battery. Advanced lean-burn-technology vehicles have internal combustion engines with direct injection, designed to use more air than is necessary for complete combustion of the fuel. Qualified alternative-fuel vehicles include cars and trucks that run solely on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen, or any liquid that is at least 85 percent methanol. Qualified fuel-cell vehicles are propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel.

The credit for purchasing (not leasing) a new hybrid car or truck with a gross vehicle weight rating of 8,500 pounds or less can range between a minimum of $250 and a maximum of $3,400 based on fuel economy. Previously owned vehicles do not qualify. The hybrid car tax credit is actually a combination of two separate tax credits — the hybrid tax credit and the alternative fuel vehicle credit. The math is complicated, but not to fear — the car manufacturers and the IRS will certify the tax credit amount available to you.

The hybrid tax credit is phased out depending on sales volume of the manufacturer. The dollar value of the tax credit will start to be reduced once a manufacturer sells 60,000 qualifying vehicles. Popular models have had their tax credits reduced sooner than less popular models.

According to the IRS, the credit was limited in the 2007 tax year for hybrid passenger automobiles and light trucks and new advanced lean-burn-technology motor vehicles manufactured by Toyota Motor Sales, USA, which includes Lexus, that were purchased on or before Sept. 30, 2007. The credit is unavailable in the 2007 tax year for vehicles purchased after Sept. 30, 2007, for the same vehicles. The credit is not available for Toyota hybrid passenger automobiles and light trucks purchased in 2008. For hybrid passenger automobiles or light trucks purchased in 2008, taxpayers may be entitled next year to a tax credit worth as much as $3,400 for the most fuel-efficient models.

The credit amount and purchase date limit for qualified hybrids can be found on the Web. Go to www.IRS.gov and search for "hybrid." You'll need IRS Form 8910, Alternative Motor Vehicle Credit, to file your 1040 if the vehicle is for personal use. If the qualifying hybrid vehicle is purchased for business use, the credit for the business use of a qualifying hybrid vehicle is reported on IRS Form 3800, General Business Credit.

The second credit is the alternative fuel vehicle credit. Eligible vehicles include cars and trucks that run solely on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen, or any liquid that is at least 85 percent methanol. This credit is for a maximum $4,000. Reduced credits are allowed for mixed-fuel vehicles that run on a mixture of an alternative fuel and a petroleum-based fuel. The alternative fuel credit is not subject to any phase-out rule based on sales. Right now only Honda's compressed natural-gas car has qualified for the AFV tax credit.

You can potentially lose out on all or part of the hybrid vehicle credit and the alternative fuel vehicle credit if you are liable for the alternative minimum tax. These credits cannot be used to reduce your federal income tax liability below the AMT liability amount.

E-mail: Patti@spencerlawfirm.com