Tax Tips

Credits for Alternative Technology Vehicles

Find out how purchasing a hybrid or other alternative technology vehicle can help you save come tax time.

Taxpayers who purchase a qualified vehicle after 2005 may qualify for a new nonrefundable credit. Qualified vehicles are designed to use less fuel than typical gas-powered cars. The vehicle must be certified by the Treasury Department as qualifying for the credit. These vehicles are:

• Made by a manufacturer and meet certain Clean Air Act and maximum available power specifications, which vary based on the gross vehicle weight rating "GVWR" of the vehicle.
• Original use property acquired for use or lease by the taxpayer. Note: The vehicle does not need to be used for business purposes.

Hybrid, lean burn diesel, and other qualifying vehicles must be purchased before 2011 (2010 for hybrid vehicles that weigh more than 8,500 pounds). Fuel cell vehicles must be purchased before 2015.

What kinds of property qualify?

Hybrid vehicle: A hybrid vehicle uses both gas and electricity to propel the vehicle. Several auto manufacturers including Toyota, Honda, and Ford manufacture hybrid vehicles.

Fuel cell vehicle: A fuel cell vehicle uses hydrogen as its main source of power.

Advanced lean burn vehicle: This type of vehicle has a combustion engine designed to use more air than necessary for complete combustion of the fuel.

Alternative fuel motor vehicle: This automobile is designed to use compressed or liquefied natural gas, liquefied petroleum gas, hydrogen or other qualifying fuel. Hybrid vehicles may qualify under this definition. Electric vehicles that qualify for the electric vehicle credit are specifically excluded from the definition, however.

How is the credit calculated?

The amount of the credit depends on the type of vehicle purchased:

• Hybrid vehicles: $400 to $2,400 depending on fuel economy plus a conservation credit of $250 to $1,000 based on lifetime fuel savings. This credit replaces the clean-fuel "hybrid" vehicle deduction.
• Advanced lean burn vehicles: The credit is calculated in the same manner as the hybrid vehicle credit.
• Fuel cell vehicles: $8,000 to $40,000 depending on the weight of the vehicle plus $1,000 to $3,000 based on fuel efficiency. Hydrogen vehicles are not yet available for purchase.
• Alternate fuel motor vehicle: $5,000 to $40,000. A reduced credit is available for vehicles that use both a qualifying alternative fuel and gasoline.

Note: Presumably, the fuel economy and lifetime fuel savings figures will be provided by the manufacturer.

Illustration: For qualifying hybrid automobiles and light trucks with a GVWR of 8,500 pounds or less and advanced lean burn vehicles, the minimum credit is $650 ($400 + $250), and the maximum credit is $3,400 ($2,400 + 1,000).