If you buy a hybrid new, you may be eligible for a one-time federal income tax deduction of $2,000!
The IRS has determined that consumers purchasing a new Honda Insight, Honda Civic Hybrid or Toyota Prius by the end of 2003 are eligible for a "Clean-Fuel" vehicle tax deduction of up to $2,000. The current incentive is scheduled to phase out in 2004-06. Vehicles purchased in 2004 will be eligible for a deduction of up to $1,500; vehicles purchased in 2005 will be eligible for up to $1,000; vehicles purchased in 2006 will be eligible for up to $500.
Important: Congress is currently considering legislation that may alter the tax incentives for hybrid vehicles. We will provide additional information if the incentives change.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 line 32 of your 1040 tax form in the "Adjusted Gross Income" section. Enter the amount of the deduction and the words "Clean Fuel" on the dotted line next to line 32 on the I.R.S. 1040 form.
If you purchased the vehicle solely for business use, just claim the deduction on the "Other expenses" line of either Schedule C (1040) or Schedule F (1040).
What if I bought my vehicle before 2003?
You can claim the deduction on these vehicles by filing an amended tax return for the tax year in which the vehicle was purchased.
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 not eligible
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 is scheduled to phase out in 2004-06.
|
Purchase Year | Maximum Deduction per Vehicle |
| 1992-03 |
$2,000 |
| 2004 | $1,500 |
| 2005 | $1,000 |
| 2006 | $500 |
Is this vehicle eligible for other tax incentives?
Some state and local governments also provide incentives for alternative fuel vehicles, so you may want to check with your state or local government. The U.S. Department of Energy's Clean Cities Vehicle Buyer's Guide for Consumers may also have useful information on state/local incentives.
Are hybrids eligible for electric vehicle tax credits?
No. Some sources have stated that, because gasoline/electric hybrids use an electric motor, they are eligible for electric vehicle tax credits. According to the IRS, this is incorrect.
Where can I find additional information?
- IRS Moves to Clarify Taxpayer Deduction for Hybrid Vehicles
- Toyota Prius Tax Deductions
- Honda Insight and Honda Civic Hybrid Tax Deductions
- www.irs.gov/pub/irs-pdf/p535.pdf
- IRS Technical Publication 535: Business Expenses (includes clean-fuel deduction info for personal use also.)
- Schedule F (1040) Instructions
- Schedule C (1040) Instructions
- USA Today article reviewing federal and state tax incentives for hybrids.
DISCLAIMER
The information on this page should not be viewed as an official or legally binding document. Other requirements or exceptions may apply. For more detailed information, please consult an IRS tax representative and/or official IRS publications.
