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Getting A Tax Break With Your Hybrid Vehicle

Buying a hybrid car gives the phrase “go green” a whole new meaning. Not only is it good for the environment, it’s also good for your pocket book. Check out the tax benefits of hybrid vehicles for yourself.

The government has decided that encouraging drivers to do their part to protect the environment could be better enhanced by offering tax incentives. So 2006 sees a variety of incentives from tax credits to tax deductions.

But before you get too excited, be sure you ...

hybrid cars, hybrid vehicles

Buying a hybrid car gives the phrase “go green” a whole new meaning. Not only is it good for the environment, it’s also good for your pocket book. Check out the tax benefits of hybrid vehicles for yourself.

The government has decided that encouraging drivers to do their part to protect the environment could be better enhanced by offering tax incentives. So 2006 sees a variety of incentives from tax credits to tax deductions.

But before you get too excited, be sure you understand all the regulations. It is a bit complex and not all vehicles that call themselves hybrids actually qualify for the hybrid tax relief programs.

The full on hybrid vehicle uses both a gas engine and an electric engine. The Toyota Prius is an example of a full on hybrid. However some of the other models that call themselves hybrids aren’t classified as such by the government. That’s because some vehicles that do no more than shut the engine off at idle wear the hybrid designation.

The full tax credit is applicable to only the first 60,000 cars sold by the car maker. After that, the amount of the credit goes down. So if you want to be able to take the full tax credit you need to be buy early. Be aware that leasing doesn’t qualify for a tax credit.

The new tax incentive programs are much more valuable than the old programs that were in place. For the exact amount and rules you need to contact the IRC, but ACEEE has provided the following estimates to give you an idea of the tax benefits you might reap.

The Toyota Prius should qualify for the full $3400 tax credit, and it’s the only hybrid to earn this honor. A $2600 credit goes to the Ford Escape 2WD, Honda Insight, and Toyota Highlander 2WD. A $2200 credit is available for the Lexus RX400H, Honda Civic Auto Transmission, and Toyota Highlander 4WD. A $1950 credit goes to the Ford Escape 4WD and Honda Civic Manual Transmission. The Lexus GS450H, Nissan Altima, and Toyota Camry all have a $1300 tax credit. The Honda Accord, GMC Sierra, and Chevy Silverado all get under $1000.

Remember, these are estimates. The actual numbers will have to be obtained from the IRS or you’ll need to wait until they release them.

The basics for being able to take the credit are as follows: you must purchase the vehicle new on or after Jan 1, 2006, and it cannot be for re-sale. That’s pretty simple but there are some other areas that aren’t so clear so be sure you get the details on “all” the rules.

The tax benefits of hybrid vehicles are definitely improving. Have your accountant or bookkeeper find out what your personal options are and take advantage of any tax breaks you can!

 

Hybrid Vehicles and Tax Benefits

You have to love car dealers. With the passage of the Energy Policy Act of 2005, car dealers are screaming about the tax benefits of buying these vehicles. Here’s the scoop.

hybrid, taxes, tax, energy act, irs, vehicles, tax savings

You have to love car dealers. With the passage of the Energy Policy Act of 2005, car dealers are screaming about the tax benefits of buying these vehicles. Here’s the scoop.

Deductions and Credits

The Energy Policy Act of 2005 made a major modification to the tax benefits of owning a hybrid vehicle in an effort to entice businesses and individuals to pursue cleaner fuel uses. The primary switch was to move the tax benefits from deductions to credits. Specifically, the Act creates a credit that can be claimed by taxpayers who purchase one of these super fuel efficient vehicles.

Taxpayers can now claim a credit of as much as $3,400 per vehicle. This is a HUGE tax break because credits are subtracted from the amount of tax you owe, not your gross income. If you can claim a credit of $3,400 and owe $5,000 after figuring your tax, you end up paying $1,600. Anyway you look at it, this is a very powerful tax savings benefit.

There are a few problems with the new credit for hybrid vehicles. First, the credits only apply to vehicle purchases beginning January 1, 2006. If you purchased in 2005, you get to claim a pitiful little deduction covered later on this page. Deductions have much less impact on your taxes since they are applied to gross earnings.

Second, the credit amount is not set regardless of what dealers or the media is saying. As of February 10, 2006, the IRS hasn’t issued any guidance on the credit amount. When it does, the IRS will set a particular credit amount for each vehicle and model. In coming up with a figure, the IRS analyze how clean the vehicle is from an emissions point of view, the size and other things that a mechanic would understand. How an IRS agent understands these issues is beyond me, but such is life. Regardless, the IRS will be issuing the credit amounts for particular vehicles as we move through 2006.

If you purchased your hybrid in 2005, you do not get to claim a credit against the amount you owe Uncle Sam. Instead, you claim a deduction in the amount of $2,000 from your adjusted gross earnings. While this doesn’t have nearly the impact of a credit, at least you get something.

 

Tax Deductions for Your 2005 Hybrid Automobile

With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding tax incentives for hybrid vehicles. This article clarifies the issue for you.

hybird, automobile, vehicle, car, tax, taxes, deduction, toyota, lexus, honda, ford

With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding tax incentives for hybrid vehicles. This article clarifies the issue for you.

Tax Deductions for Your 2005 Hybrid Automobile

People buy hybrid vehicles for different reason. They are good for the environment. They get much better mileage, which saves money. There are tax incentives for buying them. With the recent energy plan put in place by the federal government, there is a lot of confusion regarding the tax incentives.

Specifically, the question for most people is whether they can claim a tax deduction or a tax credit when they buy a hybrid. Here is the breakdown:

The Good – If you purchased a hybrid vehicle in 2005, you can claim a tax deduction.

The Bad – If you purchased a hybrid vehicle in 2005, you cannot claim a tax credit.

The Ugly – If you had waited till 2006, you could have claimed a tax credit.

Tax credits save you a lot more money than tax deductions. Tax deductions are applied to your gross income like any other deduction. This helps lower your tax bill, but tax credits are much more powerful. Tax credits are not taken out of your gross income. Instead, tax credits are taken out of the exact amount of tax you owe the government. If you owe the government $10,000 after filling out your tax return and can claim a $2,000 tax credit, your final tax bill is $8,000.

You are stuck with a tax deduction tax deduction if you purchased a hybrid in 2005, but at least it is a nice one. The deduction amount is $2,000 for vehicles certified by the IRS. They include:

Ford Escape Hybrid: Model Year 2006

Mercury Mariner Hybrid: Model Year 2006

Lexus RX 400h: Model Year 2006

Ford Escape Hybrid: Model Year 2005

Toyota Prius: Model Years 2001 through 2006

Toyota Highlander Hybrid: Model Year 2006

Honda Insight: Model Years 2000 through 2005

Honda Civic Hybrid: Model Years 2003 and 2005

Honda Accord Hybrid: Model Year 2005

To claim this deduction, you must have purchased a NEW hybrid. If the hybrid was used, you get nothing. Assuming it was new, the deduction is claimed on line 36 of the 1040 form. Make sure to write Clean Fuel in the space provided.

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