How To Claim the Deductions

How you claim the deductions for clean-fuel vehicle property and clean-fuel vehicle refueling property depends on the kind of income tax return you file.

• Individuals can claim the deduction for clean-fuel vehicle property as an adjustment to income in determining adjusted gross income on Form 1040. There is not a separate line on Form 1040 for this deduction, so you will need to enter the amount of your deduction and write "Clean Fuel" on the dotted line alongside the total adjustments line just above the line for Adjusted Gross Income.
• Sole proprietors who use the clean-fuel vehicle for business purposes should claim the deduction in Other Expenses on Schedule C or F. If they use the clean-fuel vehicle partly for nonbusiness purposes, the nonbusiness portion should be reported as an adjustment to income in determining adjusted gross income on Form 1040.

Recapture of Deductions

The IRS provisions also include an incentive to maintain clean-fuel vehicles for their intended purpose.

If the vehicle ceases to qualify as a clean-fuel vehicle within 3 years after you claim the deduction, you may have to give back, or "recapture" the deduction. You recapture the deduction by including it, or part of it, in your taxable income.

A vehicle ceases to qualify if within 3 years after the date you placed it in service:

1. It is modified so that it can no longer be used with clean-burning fuel.
2. It ceases to qualify as a clean-fuel vehicle because it fails to meet emissions control standards.

The amount you will have to recapture and include in your income is as follows:

• 100% of your deduction if the vehicle ceases to qualify within the first full year after the date the vehicle was first placed in service.
• Two-thirds of your deduction if the vehicle ceases to qualify within the second full year.
• One-third if it ceases to qualify within the third full year.

How you report the recapture of your deduction and include it in your income depends on how you originally claimed the deduction.

• Individuals who claimed a deduction as an adjustment to income in determining adjusted gross income should include the recapture amount in Other Income on Form 1040.
• Sole proprietors who claimed the deduction as Other Expense on Schedule C or F should report the recapture amount as Other Income on Schedule C or F.

Likewise, if a deduction is claimed for the business use of clean-fuel vehicle refueling property, and that property ceases to qualify, for example, if the refueling property is converted to store and dispense gasoline, or if the property is no longer used 50% or more in your business, you will have to recapture part of your original deduction.

In this case, the amount that has to be recaptured and reported as income is calculated as a percentage, as follows:

Sole proprietors should include this recapture amount in Other Income on Schedule C or F.