Qualifying electric vehicles and clean-fuel vehicles (including gasoline/electric hybrids) purchased new are eligible for federal income tax incentives.

• Clean-fuel vehicles: One-time tax deduction up to $2,000
• Electric vehicles: One-time tax credit up to $4,000 per vehicle

The current incentive will be reduced to $500 in 2006 and will expire in 2007.

Note: The clean-fuel vehicle tax deduction was originally scheduled to phase out starting in 2004. Vehicles bought in 2004 were eligible for a maxiumum deduction of $1,500, and those bought in 2005 were eligible for a $1,000 deduction. However, the "Working Families Tax Relief Act of 2004" has extended the $2,000 deduction through 2005.

Consumers purchasing a new clean-fuel vehicle by the end of 2005 may be eligible for a "Clean-Fuel" vehicle tax deduction of up to $2,000! This also applies to gasoline/electric hybrids.

The credit will be reduced to $500 in 2006 and will expire in 2007.

The U.S. federal tax code defines "clean-fuel" vehicles as motor vehicles designed to be propelled by one of the following fuels:

• Natural gas
• Liquified natural gas (LNG)
• Liquified petroleum gas (LPG)
• Hydrogen
• Electricity (e.g., some gasoline/electric hybrids)
• Any other fuel that is at least 85% alcohol or ether (e.g., E85)

Whether you itemize or take the standard deduction, you can still claim the clean-fuel tax deduction. Unless the vehicle is purchased solely for business use, simply include the deduction on line 32 of your 1040 tax form in the "Adjusted Gross Income" section. Enter the amount of the deduction and the words "Clean Fuel" on the dotted line next to line 32.

If you purchased the vehicle solely for business use, just claim the deduction on the "Other expenses" line of either Schedule C (1040) or Schedule F (1040).

You can claim the deduction on these vehicles by filing an amended tax return for the tax year in which the vehicle was purchased.

Yes.

• You must purchase the vehicle new and for your own use, not for resale
• You must drive it mostly in the United States
• The vehicle must meet all federal and state emissions requirements
• Government agencies, tax exempt organizations, and foreign entities not eligible

If any of these conditions change within 3 years of purchase, you may have to return some of the money saved by the deduction.

The current clean-fuel vehicle tax deduction will be reduced to $500 in 2006 and will expire in 2007.

No. Some sources have stated that, because gasoline/electric hybrids use an electric motor, they are eligible for electric vehicle tax credits. According to the IRS, this is incorrect.

No. Electric vehicles are only eligible for electric vehicle tax credits.

IRS Home Page
IRS Moves to Clarify Taxpayer Deduction for Hybrid Vehicles (5/12/02)
IRS Technical Publication 535: Business Expenses (includes clean-fuel deduction info for personal use also)
Schedule F (1040) Instructions
Schedule C (1040) Instructions

Electric Vehicle Incentives

If you buy an electric vehicle new, you may be eligible for a one-time federal income tax credit of up to $4,000!

Electric vehicles purchased new are eligible for a credit of 10% of the vehicle cost up to $4,000 per vehicle. The credit will be reduced to $1,000 in 2006 and will expire in 2007.

Note: The electric vehicle tax deduction was originally scheduled to phase out starting in 2004. Vehicles bought in 2004 were eligible for a maxiumum deduction of $3,000, and those bought in 2005 were eligible for a $2,000 deduction. However, the "Working Families Tax Relief Act of 2004" has extended the $4,000 deduction through 2005.

To claim the tax credit, you must fill out Form 8834: Qualified Electric Vehicle Credit.

You can claim the deduction on these vehicles by filing an amended tax return for the tax year in which the vehicle was purchased.

Yes.

• You must purchase the vehicle new and for your own use, not for resale
• You must drive it mostly in the United States
• The vehicle must meet all federal and state emissions requirements
• Government agencies, tax exempt organizations, and foreign entities not eligible

If any of these conditions change within 3 years of purchase, you may have to return some of the money saved by the deduction.

Note: Gasoline/electric hybrids are not eligible for electric vehicle tax credits. However, some are eligible for clean-fuel vehicle incentives.

This tax credit will be reduced to $1,000 in 2006 and will expire in 2007.

For more information, visit the IRS web site.

DISCLAIMER

The information on this page should not be viewed as an official or legally binding document. Other requirements or exceptions may apply. For more detailed information, please consult an IRS tax representative and/or official IRS publications.