Auto manufacturers are producing many different types of fuel efficient and alternatively fueled cars and trucks.  These Environmentally Friendly or Green vehicles vary greatly in their approach to saving energy and vary just as greatly in their ability to deliver real savings.  The techniques vary from Hydrogen Fuel Cells and all electric cars to Bio-Fuel combination engines. This promises to be an exciting time of transition for the auto industry as tax incentives and high gasoline prices drive demand for GREEN vehicles sky high.

 

Automobile Tax Credits

Individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for, and can receive, an income tax credit of $250-$3,400 – depending on the fuel economy and the weight of the vehicle.   Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard qualify for the credit.   “Lean-burn” diesel vehicles could also qualify, but currently available diesel vehicles do not meet the emissions standard.  There is a similar credit for alternative-fuel vehicles and for fuel-cell vehicles.

If individuals and businesses buy more than one vehicle, they are eligible to receive a tax credit for each.  If a tax-exempt organization buys such a vehicle, the retailer is also eligible to receive another credit.  Companies that buy heavy-duty hybrid trucks are also eligible for a larger tax credit.  Currently, there is a $2,000 tax deduction for hybrid vehicles for the remainder of 2005.

This tax credit is for vehicles “placed in service” beginning January 1, 2006, but because there is a waiting list for many hybrids, consumers can receive the tax credit if they arrange to purchase the vehicle this year as long as they do not take possession of the vehicle until January 1, 2006.  This tax credit will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles.  At that point, the tax credit for each company’s vehicles will be gradually reduced over the course of another year.

 

Excerpts from EPACT 2005

Sec. 1341: Alternative Motor Vehicle Credit:  Provides a tax credit to the buyer for the purchase of a new, dedicated alternative fuel vehicle of 50 percent of the incremental cost of the vehicle, plus an additional 30 percent if the vehicle meets certain tighter emission standards. These credits range from $2,500 to $32,000 depending on the size of the vehicle. For non-tax-paying entities, the seller of the vehicle can take the credit. The credit is effective on purchases made after December 31, 2005 and expires December 31, 2010. This provision also makes credits available for the acquisition of light-, medium- and heavy-duty fuel cell vehicles, hybrids and dedicated propane, hydrogen and M85 alt fuel vehicles, and light-duty lean-burn diesel vehicles (less than 8500 lbs.).