Should You Go Hybrid?

Sales of gas-electric hybrids more than doubled last year, with nearly 200,000 vehicles registered, according to R.L. Polk & Co., an automotive market research firm. Still, the hybrid market is quite small, accounting for a little more than 1% of all vehicles on the road.

But while a hybrid car can dramatically cut your gasoline costs (particularly if you do a lot of city driving, which will largely rely on the electric component), it may not be a cost saver overall. Hybrids are, on average, about $3,000 more expensive than their gasoline-only counterparts, says Bradley Berman, editor of HybridCars.com. Thus far, that's been fine with most hybrid purchasers, who are largely motivated by doing good by the environment or are dazzled by the cool technology that hybrids employ.

Still, if you are thinking of going hybrid, there are plenty of perks and incentives out there to sweeten the deal. Tally these up, and you may indeed save by going this route. We found seven ways to save:

Federal Tax Credits
Hybrid cars do come with some nice tax breaks. Unfortunately, figuring out whether you can actually take advantage of these breaks requires more than just a healthy understanding of the U.S. tax code.

Here's the deal: Hybrid purchasers can supposedly enjoy a credit of up to $3,400, depending on which model you buy. That said, the IRS has only released exact credit amounts for Ford and Toyota models. Thus far, the heftiest credit you could get is $3,150 for a Toyota Prius. There's no word yet on when official amounts for other hybrids will be released.

If you want full credit for one of the more popular hybrids, like the Prius and the Honda Civic Hybrid, act fast, Berman advises. Credits begin to phase out after the manufacturer has produced 60,000 cars, and Toyota is reported to be near that mark. There are bills in Congress to extend or expand the incentives program, but immediate action is unlikely.

State Tax Credits
You can knock another $3,000 or so off the purchase price of your hybrid if you live in the right state. West Virginia is offering a credit of up to $3,750 off the purchase price of a hybrid, depending on its fuel efficiency and expense compared with a traditional automobile. Pennsylvania, meanwhile, has set aside $1.5 million for a flat-rate credit of $500, first come, first served.

Other states are knocking off sales tax instead. Washington, for example, is waiving its sales tax of 6.5%. And Tennessee is considering a bill that would cut the sales tax in half, to 3.5%, for purchases of a hybrid. For a list of programs and bills by state, click here.

Manufacturer Incentives
After federal tax credits, dealer cash and sales may seem like small peanuts, says Phil Reed, consumer advice editor for Edmunds.com. But don't forget to look for them. Right now, Ford is offering 0% financing on its hybrids, the Ford Escape and Mercury Mariner. You can also get $500 cash back on the Escape if you're active military personnel or, randomly, a member of the American Quarter Horse Association.