Tax Benefits For Fuel Efficient Vehicles

Fuel efficient vehicles are vehicles that get a higher than normal fuel economy rating.  These include several types of hybrid vehicles and even alternative fuel vehicles.  Driving a fuel efficient vehicle gives you many benefits.  You’ll save money on gas and be able to help the environment.  These vehicles also usually have less maintenance and repair costs.  All of these benefits make driving a fuel efficient vehicle desirable.  There is another benefit you also may be interested in.  Driving a fuel efficient vehicle may qualify you for a handsome tax credit from the IRS.

In 2005, the government passed an energy act called the Energy Tax Policy Act of 2005.  In this act, there’s a section devoted to tax credits for fuel efficient vehicles.  The section states that certain vehicles meeting specific guidelines can qualify for a tax credit up to $4000.  The amount of the credit will depend on several factors like gas mileage and the amount of emissions the vehicle releases.  Even if the car you buy is a hybrid, you may not qualify if it doesn’t meet the minimum standards.  Each hybrid dealer has a cap off for the tax credit.  Once the dealer sells 60,000 hybrid vehicles, the credit starts to decrease until it no longer applies. 

Hybrids aren’t the only vehicles that qualify for a tax credit.  Fuel cell vehicles that generate power from cells that convert chemical energy into electricity can qualify as well.  These cars may be able to get a substantial credit.  Cars that run off of alternative fuel sources like hydrogen, petroleum gas, natural gas, or any other fuel that’s made up of at least 85% methanol could be considered for the tax credit.

As mentioned earlier, there are standards the vehicle will need to meet in order to qualify.  The best way to find out if you qualify for a tax credit may be to talk to a tax professional.  They should be able to explain the qualifications and the tax credit process.  You can also contact the IRS directly to find out from them.  It is something you should consider looking into if you plan on buying a hybrid or converting your current vehicle to a hybrid.  Obviously the IRS can change their policies at any time, so you should be careful about deciding to buy a fuel efficient vehicle solely on the benefit of a tax credit.  There are many reasons to buy a fuel efficient vehicle.  The tax credit should just be an extra bonus if you qualify.