Tax Article - A $2,000 Clean-Fuel Vehicle Deduction

The $2,000 clean-burning fuel deduction has been extended through the end of 2005 by the Working Families Tax Relief Act of 2004. The deduction will be limited to $500 for vehicles placed in service in 2006 and no deduction will be allowed thereafter.

The clean-burning fuel deduction is allowed by the federal government for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel (i.e., hybrid vehicle). Hybrid vehicles combine an electric motor with a gasoline-powered engine, thus obtaining better fuel efficiency and producing fewer emissions than gasoline-powered vehicles.

This deduction is a one time deduction allowed in the year the vehicle is originally placed in service by the taxpayer. It is reported on Form 1040 as a deduction for the Adjusted Gross Income. The taxpayer does not have to itemize his or her deductions to claim it. If the deduction was not claimed when the return was originally filed, the taxpayer may amend his or her income tax return within three years from the original return’s due date.

The following is a list of vehicles that qualify for the deduction:

• Toyota Prius – 2001 through 2005
• Honda Insight – 2000 through 2004
• Honda Civic Hybrid – 2003 through 2004

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