Clean-Fuel Deduction

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The original purchaser of a qualifying hybrid gas-electric car may deduct $2,000 for the year the vehicle is first used, if that year is before 2006. In 2006, the deduction is scheduled to drop to $500.


These vehicles qualify for the clean-fuel vehicle deduction:

  • Lexus RX 400h — Model Year 2006
  • Ford Escape Hybrid — Model Year 2005
  • Toyota Prius — Model Years 2001 through 2005
  • Honda Insight — Model Years 2000 through 2005
  • Honda Civic Hybrid — Model Years 2003 and 2005
  • Honda Accord Hybrid — Model Year 2005


Deduction for nonbusiness clean-fuel vehicle property by individuals. Individuals can claim the deduction for clean-fuel vehicle property used for nonbusiness purposes by including the deduction in total adjustments on Form 1040, and by entering “Clean Fuel” and the dollar amount on the dotted line next to the total adjustments line. If the vehicle is used partly for business, see the next two discussions.


Deduction for business clean-fuel vehicle property by employees. Employees who use clean-fuel vehicle property for business, or partly for business and partly for nonbusiness purposes, should include the entire deduction in total adjustments on Form 1040, and enter "Clean Fuel" and the dollar amount on the dotted line next to the total adjusments line.


Sole proprietors. Sole proprietors must claim deductions for clean-fuel vehicle property and clean-fuel vehicle refueling property used for business on the Other expenses line of either Schedule C (Form 1040) or Schedule F (Form 1040). If clean-fuel vehicle property is used partly for nonbusiness purposes, claim the nonbusiness part of the deduction as explained earlier under Deduction for nonbusiness clean-fuel vehicle property by individuals.


Partnerships, S Corporations, and C Corporation. Claim the deduction for clean-fuel vehicle property and clean-fuel vehicle refueling property on the 'Other Deductions' line of Form 1065, 1120S, or 1120 respectively.


Basis Adjustments. You must reduce the basis of your clean-fuel vehicle property or clean-fuel vehicle refueling property by the deduction claimed. If, in a later year, you must recapture part or all of the deduction, increase the basis of the property by the amount recaptured. If the property is depreciable property, you can recover this additional basis over the property's remaining recovery period beginning with the tax year of recapture. For more informaton regarding recapture of the deduction, see IRS Publication 535.


Sources: Sec. 179A. Deduction for clean-fuel vehicles and certain refueling property - IRS Publication 535 - IRS.gov Newsroom

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