| Hybrids - Federal Tax Incentives |
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The federal government provides an adjustment (a deduction) to gross income for "clean-fuel vehicles." Toyota Prius™, Honda Insight™ and Honda Civic™ Hybrids qualify as "clean-fuel vehicles." This is not a tax credit. It is a deduction based on when you bought your car.
| Year |
Adjustment Amount |
| 2004 |
$2,000 |
| 2005 |
$2,000 |
| 2006 |
$500 |
| 2007 |
$0 |
The federal government provides a tax credit for qualifying electric vehicles (electric only with four or more wheels) of 10 percent of the cost of a qualifying electric vehicle. Hybrid vehicles do not qualify for the qualified electric vehicle tax credit. The tax credit for qualifying electric vehicles is a dollar-for-dollar credit against federal taxes owed.
"Clean-Fuel Vehicle"(HYBRID) Adjustment to Gross Income
If you purchase a hybrid electric vehicle (gasoline-electricity) or another qualifying alternative fuel, you likely qualify for a "clean-fuel vehicle" adjustment to gross income. Qualifying alternative fuel vehicles use biodiesel, compressed natural gas (CNG), ethanol, liquified natural gas (LNG), methanol, liquefied petroleum gas (LPG or propane), dedicated (100 percent) electric, hythane or hydrogen.
Internal Revenue Service (IRS) instructions show that electric hybrids (Toyota Prius™, Honda Insight™ , Honda AccordTM Hybrid, Honda Civic™, or Hybrid, Ford EscapeTM Hybrid) qualify as "clean-fuel vehicles." Vehicles bought in 2001, 2002, 2003, 2004, or 2005 are eligible for an adjustment to gross income of $2,000. The deduction amount decreases to $500 in 2006. IRS publication 535, "Business Expenses," (page 48-50) details this deduction. Chapter 12 states that you may claim this "clean-fuel vehicle" income adjustment even if it is not used in a trade or business.
As an individual, you claim this deduction by placing $2,000 (or appropriate deduction amount) on line 33 of your federal 1040 tax filing form. To qualify, you must indicate "clean-fuel" on the dotted line to the left of any deduction cost entry you place on line 33 of the 1040 form. Keep in mind that line 33 is the sum of adjustments to the Adjusted Gross Income line so you must add the "clean-fuel vehicle" amount to any other adjustments to gross income you have for the sum amount to be correct. This adjustment may be claimed on your tax filing for the year in which you purchase the vehicle. You may have to amend back taxes to claim this adjustment. Consult your accountant / tax preparer.
Qualifying Electric Vehicle Credit
If you purchase a dedicated electric fuel-only vehicle with four or more wheels, you likely qualify for a dollar-for-dollar credit against federal taxes owed of up to $4,000. IRS publication 535, "Business Expenses," (pages 48-50) details this deduction.
Hybrid electric vehicles are not considered dedicated electric vehicles by the federal government. Therefore, hybrids do not qualify for the qualified electric vehicle tax credit.
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