The IRS and Treasury have provided guidance on a process that manufacturers can use to certify the amount of credit the purchaser of a hybrid or lean burn vehicle can claim. Taxpayers who are purchasing these vehicles will be able to rely on the manufacturer's certification when they claim the credit on their tax return.

The tax credit for hybrid vehicles, which was enacted by the Energy Policy Act of 2005, may be as much as $3,400 for those who purchase the most fuel-efficient vehicles. Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles will qualify for the tax credit. The guidance also provides a similar certification process for advanced lean burn technology vehicles.

Since taxpayers may claim the full amount of the allowable credit only up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid and advanced lean-burn technology motor vehicle, consumers seeking the credit may want to buy early in the year.

The Energy Policy Act also provides tax credits for motor vehicles that are not covered by today's guidance. The other vehicles eligible for credits are fuel cell vehicles, alternative fuel vehicles, and hybrid heavy trucks. The IRS will issue guidance providing certification procedures for these vehicles in the near future.

...back to 19 January 2006

Further Information:
IRS and Treasury Provide Guidance to Hybrid Manufacturers
Treasury and IRS Issues Guidance Regarding Hybrid and Lean Burn Vehicles
Credit for New Qualified Alternative Motor Vehicles

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Federal law allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines.

The IRS has now certified model year 2006 Ford Escape Hybrid and the 2006 Mercury Mariner Hybrid vehicles as being eligible for the clean-burning fuel deduction. This certification means that taxpayers who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2,000 on Form 1040 Individual Income Tax Return.

This one-time deduction must be taken in the year the vehicle is originally used. The deduction for the purchase of a hybrid vehicle expires on December 31, 2005 and has been replaced by the Alternative Motor Vehicle Credit, introduced in the Energy Act of 2005.

...back to 10 November 2005

Further Information:
IRS Certifies Ford and Mercury Hybrid Vehicles for the Clean-Fuel Deduction
List of Vehicles Certified for the Deduction

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