Colorado Tax Credit for Green Vehicles

Residents of Colorado can claim a credit on their Colorado state income tax return when they purchase a hybrid electric vehicle or alternative fuel vehicle. The tax credit is also available for the cost of converting a conventional fuel vehicle to use alternative fuels and for replacing the power source with a power source that uses alternative fuel.

For purposes of this tax credit, alternative fuel includes electricity, compressed natural gas, propane, methanol and ethanol or any mixture that contains at least 85% methanol or ethanol by volume. Other fuels such as clean diesel and reformulated gasoline may also qualify if they meet the air quality control commission standards on emissions.

How much is the credit?

The amount of the credit you can claim is calculated as a percentage depending on the certification level of the vehicle in terms of its emissions, and the year in which you make the expenditure to purchase a new vehicle or convert an existing vehicle. In the case of a new vehicle, the percentage is applied to the difference between the cost of the alternative fuel vehicle and the cost of the same or most similar traditional fuel vehicle. When you convert a vehicle to an alternative fuel, the percentage is applied to the cost you incur. And when you replace the power source of an existing vehicle, the percentage is applied to the difference between your cost to replace the power source and the cost of the same or most similar power source that uses a traditional fuel.

For a low-emitting vehicle the percentage is 50% for tax years 2008 and 2009 and 25% for tax years 2010 and 2011. For ultra-low-emitting vehicles or inherently-low-emitting vehicles the percentage is 75% for 2008 and 2009 and 50% for 2010 and 2011. Zero-emitting vehicles qualify for 85% in 2008 and 2009 and 75% in 2010 and 2011. If you convert a vehicle or power source that is ten years old or older, so that it will never be operating on Colorado highways in the future, the percentage is doubled, up to a maximum of 100%.

On the Colorado Department of Revenue website at www.revenue.state.co.us/fyi/html/income09.html you can find a list of alternative fuel vehicles and the amount of the credit that applies for each vehicle by make, model and year. For example, a 2008 Ford Escape hybrid qualifies for a $3,417 tax credit and a 2008 Honda Civic GX that uses natural gas is eligible for a $5,946 credit.

Who can claim the credit?

You are eligible for the tax credit if you purchase a new qualifying vehicle, when you convert a traditional vehicle to use alternative fuels, or when you replace the power source. You can also claim the credit if you lease a qualifying vehicle or if you are the lessor. When you lease the vehicle the available credit is prorated according to the difference between the value of the vehicle at the beginning and end of the lease term. The difference is divided by the value at the beginning of the lease and the available credit is multiplied by the resulting percentage.

You can claim the credit on a used vehicle if you can show that no previous owner claimed the credit. The credit you can claim would be reduced in proportion to the decline in the value of the vehicle compared to the original manufacturer suggested retail price.

How to claim the credit

When you file your annual Colorado state income tax return, you should claim the credit on line 42 of Form 104CR - Individual Credit Schedule. If you are claiming the alternative fuel refueling facility credit, you would report that amount on line 43. The total is carried forward to line 20 of Form 104 - Colorado Individual Income Tax Return. If the amount of the credit exceeds your tax liability for the year, you can carry forward the unused portion of the credit for up to five years.

Sources:

Colorado Department of Revenue - Taxpayer Service Division - Alternative Fuel Income Tax Credits: www.revenue.state.co.us/fyi/html/income09.html

Union of Concerned Scientists - Hybrid Center - State and Federal Hybrid Incentives - Colorado: http://go.ucsusa.org/hybridcenter

U.S. Department of Energy - Energy Efficiency and Renewable Energy - Alternative Fuels & Advanced Vehicles Data Center - Colorado Incentives and Laws: www.afdc.energy.gov