Cut Emissions and Your Tax Bill

$2000 tax The write-off on hybrid vehicles was scheduled to be scaled back to $1,500 in 2004, but provisions in a new tax law enacted last October postpone the phaseout until 2006.

Published: 10-Mar-2005

N class=body>Green could have a double meaning for environmentally conscious motorists at tax time.

Owners of the increasingly fashionable hybrids can write off $2,000 of the purchase price for these vehicles, which combine an electric motor with a gasoline-powered engine to produce fewer emissions. This should give the many Hollywood stars who own such environment-friendly autos slightly lower tax bills.

Of course, the tax break isn't limited to the rich and famous. Any driver who opts for an auto that the Internal Revenue Service has deemed eligible for the clean-burning-fuel tax deduction can write off some of the vehicle's cost. This includes not only the popular hybrid models, but also vehicles that operate on natural gas, liquified natural gas, liquified petroleum gas, hydrogen or any other fuel that's at least 85 percent alcohol.

And drivers of these various gas-saving vehicles got some more good news last fall. The write-off was scheduled to be scaled back to $1,500 in 2004, but provisions in a new tax law enacted last October postpone the phaseout until 2006. So if you bought a hybrid or any other clean-fuel vehicle last year, you can claim the full credit on your current return.

Most taxpayers eligible for this credit are hybrid owners. To help them know if their car is OK to claim, the IRS annually certifies hybrids that meet deduction standards. This year, a domestic auto maker joins the list that has been dominated by Japanese manufacturers:

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