Taxpayers who purchase gas-electric hybrid vehicles, which combine an rechargeable energy storage system with an internal combustion or heat engine, may be eligible for a tax credit. For cars and light trucks weighing less than 8,500 lbs., the credit can be up to $3,400 and depends on how the vehicle’s fuel efficiency compares to 2002 models, and on the vehicle’s estimated lifetime fuel savings, as in the case with the credit for fuel cell vehicles. This credit replaces the deduction that was previously allowed for hybrid vehicles. There is a phase-out of this credit after an automaker has sold 60,000 units. So, the amount of time the maximum credit can be taken will depend on how quickly the automaker produces and sells its quota of hybrid vehicles qualifying for the tax incentive.
Alternative Fuels
A tax credit is allowed for new qualified alternative fuel vehicles. Alternative fuels include compressed or liquefied natural gas, hydrogen, or any liquid fuel that is at least 85 percent methanol. The tax credit is calculated as the applicable percentage of the incremental cost of the qualified alternative fuel vehicle. The incremental cost is the excess of the manufacturer’s suggested retail price for the qualified alternative fuel vehicle over the price for a gasoline or diesel-powered vehicle of the same model. The incremental amount that is allowed for purposes of calculating the credit is limited based on the weight of the vehicle. For example, the maximum incremental cost for a vehicle weighing less than 8,500 lbs. is $5,000. The applicable percentage is 50% plus another 30%, depending on whether certain air emission standards are met.