Clean-Fuel Vehicle Incentives
Consumers purchasing a new clean-fuel vehicle by the end of 2005 may be eligible for a one-time "Clean-Fuel" vehicle tax deduction of up to $2,000! This also applies to gasoline-electric hybrids.
NOTICE: New legislation has changed the tax incentives for clean-fuel vehicles. Clean-fuel vehicles placed in service by December 31, 2005 are still eligible for the tax incentives described on this page. Those placed in service after this date will no longer be eligible for these deductions but may be eligible for a federal income tax credit under new legislation. Watch this page for updated tax credit information as it becomes available.
What are clean-fuel vehicles?
The U.S. federal tax code defines "clean-fuel" vehicles as motor vehicles designed to be propelled by one of the following fuels:
* Natural gas
* Liquified natural gas (LNG)
* Liquified petroleum gas (LPG)
* Hydrogen
* Electricity (e.g., some gasoline/electric hybrids)
* Any other fuel that is at least 85% alcohol or ether (e.g., E85)
How much is the deduction?
The deduction is equal to the cost of the vehicle's engine, the equipment used to store or deliver the fuel, and the equipment used to exhaust combusted gases, up to a maximum of $2,000 for vehicles places in service by the end of 2005.
For vehicles that may be propelled by both a clean-burning fuel and any other fuel, the deduction is limited to the additional cost of permitting the use of the clean-burning fuel, with the same maximum deductions detailed above.
The IRS determines the maximum deduction for specific gasoline-electric hybrid models. Click here for more information on hybrids.
How do I claim the deduction?
Whether you itemize or take the standard deduction, you can still claim the clean-fuel tax deduction. Unless the vehicle is purchased solely for business use, simply include the deduction on your 2004 1040 tax form in the "Tax, Credits, and Payments" section. Enter the amount of the deduction and the words "Clean Fuel" on the line next to line 35 and include the deduction in the total.
Sample of clean fuel entry in 1040 form:
If you purchased the vehicle solely for business use, just claim the deduction on the "Other expenses" line of either Schedule C or Schedule F.
What if I bought my vehicle before 2004?
If you bought your vehicle in a previous tax year, you must fill out an amended tax return Form 1040X for that year.
Are there other requirements?
Yes.
* You must purchase the vehicle new and for your own use, not for resale.
* You must drive it mostly in the United States.
* The vehicle must meet all federal and state emissions requirements.
* Government agencies, tax exempt organizations, and foreign entities are not eligible.
* The vehicle must have four or more wheels and be manufactured primarily for use on public streets, roads, and highways (it does not include a vehicle operated exclusively on a rail or rails).
If any of these conditions change within 3 years of purchase, you may have to return some of the money saved by the deduction.
When does this incentive end?
The current clean-fuel vehicle tax deduction will end after December 31, 2005. However, vehicles purchased after this date may be eligible for a federal income tax credit , depending upon their fuel economy, fuel savings, and other factors.
