Hybrid Vehicles Earn "Clean-Fuel" Tax Reduction

by Center for Personal Finance editors

Car buyers may be eligible for a one-time federal income tax deduction of up to $2,000 if they buy a hybrid vehicle such as the Toyota Prius, Honda Insight, or Honda Civic Hybrid. The IRS (Internal Revenue Service) has determined that hybrids are eligible for Clean-Fuel vehicle tax deductions and will determine the exact deduction for each vehicle in the coming months.

The U.S. Department of Energy (DOE)/Environmental Protection Agency (EPA) publication Fuel Economy Guide 2003 and its companion Web site explain the federal tax incentives for buying a hybrid. They also contain information about tax incentives for purchasing other alternative fuel vehicles, and the Web site will provide more information about the hybrid tax deductions when the IRS determines the deduction amounts.

For now, both resources answer some basic questions about tax incentives for hybrids and other alternative fuel vehicles, such as, What are the requirements for getting a deduction? How do I claim my deduction? What if I bought my vehicle before 2002? Are hybrids eligible for electric vehicle tax credits?

Congress is considering legislation that may increase the tax incentives for hybrids and other alternative fuel vehicles purchased after Sept. 30, 2002. DOE and EPA will continue to update the site as more information becomes available, so visit the Web site for the latest news about alternative fuel vehicle tax incentives.

September 30, 2002