Category: Personal Finance
As an incentive to purchase a hybrid vehicle, the U.S. government is providing a tax credit. Depending on the type of vehicle and the timing of the purchase, the credit can range from $250 to $3,400.
The Energy Policy Act of 2005 provides a tax credit to taxpayers purchasing a qualifying hybrid vehicle. The vehicle manufacturer must certify to the Internal Revenue Service (IRS) that the vehicle meets the required qualifications and the amount of the credit.
In order to utilize the tax credit, the taxpayer must meet the following requirements:
• The vehicle must be purchased between December 31, 2005, and December 31, 2010.
• The credit is only available to the original owner. This means that the taxpayer must purchase a new vehicle. The purchase of a used hybrid vehicle does not qualify for the tax credit.
• The credit is available to the taxpayer if the vehicle is purchased for personal or business use.
• The vehicle must be used primarily in the United States.
The credit is not available to a taxpayer who leases a qualifying hybrid vehicle. However, the leasing company would be eligible to claim the credit.
This credit replaces the tax deduction of $2,000 for taxpayers who purchased hybrid vehicles prior to year-end 2005.
There are over 30 vehicles that qualify for the tax credit. However, once the vehicle manufacturer sells 60,000 of that particular qualifying vehicle to retail dealers, the tax credit is reduced.
For example, the Toyota Prius qualifies for a $3,150 tax credit, if the vehicle was purchased on or before September 30, 2006. Because there were 60,000 vehicles sold by June 30, 2006, the credit has been reduced by 50% or $1,575, for taxpayers buying the vehicle during the six month period beginning October 1, 2006, and ending March 31, 2007. The credit is further reduced to only 25% of the original amount for any purchases in the next six month period ending September 30, 2007. There is no credit available for this vehicle if the purchase is made after September 30, 2007.
How to Claim the Credit
The taxpayer should use Form 8910 (Alternative Motor Vehicle Credit) to claim the credit if the vehicle is purchased for personal use or Form 3800 (General Business Credit) if purchased for business use.
This tax credit is one means of encouraging taxpayers to aid in the reduction of the country’s dependence on oil. If you are purchasing a new vehicle, you should do your homework to determine whether a hybrid vehicle is appropriate for you.
The list of vehicles that qualify for the tax credit is frequently updated to include the latest models. You can find that list and other information on this tax credit by going to the IRS website, www.irs.gov, doing a search on “hybrid cars”, and ordering the articles by date.
Elaine E. Bedel, CFP® is president of Bedel Financial Consulting, Inc., a fee-only wealth management firm providing financial planning and investment management services. For more information, visit their website at www.BedelFinancial.com or email to firstname.lastname@example.org.
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