Hybrid Tax Incentive - 2005
With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding hybrid tax incentives for 2005. This article clarifies the issue for you.
Hybrid Tax Incentive - 2005
People buy hybrid vehicles for different reason. They are good for the environment. They get much better mileage, which saves money. There are tax incentives for buying them. With the recent energy plan put in place by the federal government, there is a lot of confusion regarding the tax incentives.
Specifically, the question for most people is whether they can claim a tax deduction or a tax credit when they buy a hybrid. Here is the breakdown:
- The Good – If you purchased a hybrid vehicle in 2005, you can claim a tax deduction.
- The Bad – If you purchased a hybrid vehicle in 2005, you cannot claim a tax credit.
- The Ugly – If you had waited till 2006, you could have claimed a tax credit.
Tax credits save you a lot more money than tax deductions. Tax deductions are applied to your gross income like any other deduction. This helps lower your tax bill, but tax credits are much more powerful. Tax credits are not taken out of your gross income. Instead, tax credits are taken out of the exact amount of tax you owe the government. If you owe the government $10,000 after filling out your tax return and can claim a $2,000 tax credit, your final tax bill is $8,000.
You are stuck with a tax deduction tax deduction if you purchased a hybrid in 2005, but at least it is a nice one. The deduction amount is $2,000 for vehicles certified by the IRS. They include:
- Ford Escape Hybrid: Model Year 2006
- Mercury Mariner Hybrid: Model Year 2006
- Lexus RX 400h: Model Year 2006
- Ford Escape Hybrid: Model Year 2005
- Toyota Prius: Model Years 2001 through 2006
- Toyota Highlander Hybrid: Model Year 2006
- Honda Insight: Model Years 2000 through 2005
- Honda Civic Hybrid: Model Years 2003 and 2005
- Honda Accord Hybrid: Model Year 2005
To claim the hybrid tax incentive for 2005, you must have purchased a NEW hybrid. If the hybrid was used, you get nothing. Assuming it was new, the deduction is claimed on line 36 of the 1040 form. Make sure to write Clean Fuel in the space provided to get your 2005 hybrid tax incentive.