Tax Benefits for Fuel-Efficient Vehicles

With gas prices going through the roof maybe now is the time to take advantage of the energy tax incentives available for the purchase of hybrid vehicles.

PLUG-IN ELECTRIC DRIVE MOTOR VEHICLE CREDIT

A tax credit is available for qualified plug-in electric drive motor vehicles, including passenger vehicles and light trucks, acquired after 2009. A qualified plug-in electric drive motor vehicle is a vehicle:

With a gross weight rating of 14,000 pounds or less
Acquired for use or lease and not for resale
The original use of which must commence with the individual claiming the credit
Used predominantly in the U.S.
Propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of at least 4 kilowatt hours
That can be charged from an external source of electricity

The base credit amount for qualifying vehicles is $2,500. In the case of a qualifying vehicle that draws on a battery with a capacity of at least 5 kilowatt hours, an additional $417 credit amount is available, plus an additional $417 credit amount for each kilowatt hour of capacity in excess of 5 kilowatts. The maximum amount of total credit available is $7,500.The portion of the credit attributable to property subject to depreciation (e.g., vehicles used in a trade or business) is treated as part of the general business credit. Generally, the portion of the credit attributable to nondepreciable property (e.g., vehicles not used in a trade or business) can be claimed as a personal tax credit, and applied against both regular income tax and alternative minimum tax (AMT).The credit begins to phase out for a manufacturer's vehicles when at least 200,000 qualifying vehicles have been sold for use in the U.S. Additional information regarding qualifying vehicles and manufacturer sales can be found on the IRS website.

A 10 percent credit was available for qualified 2- and 3-wheeled vehicles, acquired during 2012 and 2013, that would otherwise have met the criteria of a qualified plug-in electric drive motor vehicle but for the fact that they did not have at least four wheels. The maximum credit for such vehicles was $2,500.

The credit is available for 2-wheeled vehicles acquired in 2015 and 2016.

CREDIT FOR QUALIFIED ALTERNATIVE FUEL (CLEAN-FUEL) VEHICLES

The Energy Tax Incentive Act of 2005 created a nonrefundable tax credit, which is the sum of the qualified hybrid motor vehicle credit, the qualified advanced lean-burn technology motor vehicle credit, the qualified alternative fuel (or clean-fuel) motor vehicle credit, and the qualified fuel cell motor vehicle credit.

The qualified fuel cell motor vehicle credit is the only credit of the four that is still available for vehicles purchased in 2015 and 2016.

The portion of the credit attributable to property subject to depreciation (e.g., vehicles used in a trade or business) is treated as part of the general business credit. Generally, the portion of the credit attributable to nondepreciable property (e.g., vehicles not used in a trade or business) can be claimed as a personal tax credit, and applied against both regular income tax and alternative minimum tax (AMT).

No credit is allowed for any vehicle used predominantly outside of the United States.

A limitation is imposed on the number of qualified hybrid motor vehicles and advanced lean-burn technology motor vehicles that can be sold by each manufacturer of such vehicles. The credit is phased out once the manufacturer has sold 60,000 vehicles.

This credit is available to taxpayers who purchase new, qualifying vehicles. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

QUALIFIED FUEL CELL MOTOR VEHICLE CREDIT

The amount of the qualified fuel cell motor vehicle credit depends on the weight of the vehicle, and ranges from $8,000 ($4,000 if placed in service after 2009) to $40,000. If the qualified fuel cell motor vehicle is a passenger car or light truck, an additional credit (ranging from $1,000 to $4,000) applies if certain fuel efficiencies are met based on 2002 standards.

A qualified fuel cell motor vehicle is defined as a motor vehicle that (1) is propelled by power derived from one or more cells that convert chemical energy into electricity by mixing oxygen and hydrogen fuel that's stored on board the vehicle in any form, (2) in the case of a passenger automobile or light truck, receives an EPA certification, (3) the original use of which commences with the taxpayer, (4) is acquired for use or lease by the taxpayer and not for resale, and (5) is made by a manufacturer.

The qualified fuel cell motor vehicle credit applies to vehicles purchased after December 31, 2005, and before January 1, 2017.