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The
new Energy Tax Incentives Act of 2005 (2005 Energy Act) has one particular
tax benefit for those taxpayers who are looking to purchase a new vehicle.
Taxpayers who buy environmentally friendly hybrid or alternative fuel motor
vehicles will directly benefit from a provision entitled the alternative
motor vehicle credit.
Effective
January 1, 2006, the 2005 Energy Act eliminates the clean-fuel vehicle
deduction and replaces it with a more generous credit. Like most tax
credits, this credit is limited. The credit is limited to about $2,000 for
vehicles that weigh less than 10,000 pounds.
The
tax definition of a vehicle eligible for the credit is ‘a motor vehicle
that is propelled by a clean burning fuel, such as hydrogen, electricity,
natural gas, liquefied natural gas, liquefied petroleum gas, ethanol,
methanol, any other alcohol, or ether gas-hybrid cars.’ A vehicle
qualifying for the credit must be purchased or leased by the taxpayer (not
for resale), it must be made by a manufacturer, and the taxpayer must be the
first owner of the vehicle.
Most
individuals will only be able to take advantage of the hybrid motor vehicle
credit since only these vehicles are being mass produced by the major
automakers. The new qualified hybrid motor vehicle credit is divided into a
two part credit. The two parts consist of the fuel economy credit, and a
conservation credit. To calculate the fuel economy credit the hybrid
vehicles fuel efficiency is compared with that of a 2002 model gasoline
powered vehicle. The conservation credit is calculated by the lifetime fuel
savings of the vehicle. The new average credit for the purchase of a hybrid
vehicle is anticipated to range between $1,500 to $2,250.
For
those taxpayers that have a need for heavier business-use vehicle the credit
is still applicable. For hybrid vehicles that are not passenger vehicles or
light trucks with a gross vehicle weight of rating less than 8,500 pounds,
the credit is equal to an applicable percentage times the qualified
incremental hybrid cost of the vehicle as certified by the manufacturers in
accordance with the IRS’s guidance. The credit can actually go up to
$30,000 for vehicles that have a gross weight of more than 26,000 pounds.
Unfortunately, many heavy SUV’s are not eligible for the hybrid vehicle
credit.
There
are several tax benefits to purchasing an environmentally friendly vehicle.
However there is a lot of fine print that, if you’re not careful, can
prevent you from maximizing your savings. We can help to lighten the load on
the tax side of your plans when you are ready.
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