Clean Up With A Hybrid

Hybrid vehicles have become very popular recently, especially given the increase in fuel prices. The government has a special deduction available for purchasers of these vehicles, but it may not be what the salesman promised.

Hybrid vehicles are eligible for the clean-fuel deduction of up to $2,000 for vehicles placed in service in 2005. In 2006, the maximum is scheduled to be $500, and the deduction terminates after 2006.

Note that this is a deduction, and not a credit. As such, it will reduce your taxable income, but is not a direct credit back to you. For instance, if you were in the 25% tax bracket, the clean fuel deduction would save you $500.

We wanted to clarify this provision, as some clients have understood when purchasing these vehicles that they come with a $2,000 credit, which is not the case. A list of the vehicles that qualify for this deduction can be found on the IRS website.