Hybrid vehicles

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Efficient motor vehicle tax credits

A New tax credit exists for certain fuel-efficient vehicles placed in service starting in 2006. This credit, created by the 2005 Energy Tax Act, is available to individuals and small businesses.

The credit is composed of four parts:

  • Qualified fuel cell motor vehicle credit.
  • Advanced lean burn technology credit.
  • Qualified hybrid motor vehicle credit.
  • Qualified alternative fuel motor vehicle credit.

It is more beneficial than the 2005 deduction offered on vehicles, because it is a dollar for dollar reduction of tax liability, rather than a reduction of AGI.

Due to marketplace availability of these new vehicles, the hybrid and lean burn technology credits may prove to be the more prevalent of these credits. A credit of up to $3,400 will be allowed for qualifying new vehicles purchased within these categories.

While hybrid vehicles have been the source of much discussion for some time, advanced lean burn technology is a relatively new topic among consumers. An example of vehicles within this category is Turbo Diesel Injection (TDI) vehicles, which are now achieving improved mileage.

Visit the American Council for an Energy Efficient Economy at ACEEE for a list of fuel-efficient vehicles along with their estimated 2006 tax credit.

Refer to Sec. 30B. Alternative motor vehicle credit for detailed information about this credit.

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