Tax Tips: The Alternative Motor Vehicle Credit

Tax Tips: The Alternative Motor Vehicle Credit - Enacted in 2005 this tax credit replaced the clean fuel burning deduction. Aimed primarily at purchasers of new hybrid vehicles that were bought on or after the 1^st of January 2006 and given in the form of a tax deduction based on each individual vehicle according to make, model and date of purchase. A hybrid vehicle is describes as one that derives its power from both an internal combustion engine and a rechargeable battery. This deduction is also available to purchasers of a vehicle listed as one that uses advanced lean burn technology.

In order for the taxpayer to qualify for this deduction, even though the manufacturer has certified the vehicle, certain requirements must be met.

· The taxpayer must be the original owner of the vehicle.

· The vehicle must be new and not used.

· The vehicle must be purchased and put into service between 12-31-05 and 12-31-10.

· It is only available to the original purchaser of the vehicle; if it is a leased vehicle then the leasing company may claim the credit.

· It must be used primarily in the United States or its territories.

The credit for the newly purchased vehicle begins to be reduced in the second quarter after the manufacturer has notified the IRS that it has reached 60,000 sales of qualifying vehicles. This means that as each quarter passes the amount of credit you are eligible for goes down until there is no credit for that particular vehicle left. So for example if you bought your Toyota Prius by 09/30/06 you would have received a $2,600 credit but if you bought it after 10/01/07 you would not receive any credit.

So if you were to have bought you car on the 30^th of September2006 and licensed it in February of 2007 you would have gotten full credit but if you had bought it on the 1^st of October of 2006 and licensed it in February of 2007 you would only have gotten half the credit. Seems confusing but it gets easier as more manufacturers are making these types of vehicles.

As it stands right now the only vehicles that still qualify for any credit at all made by a major manufacturer are the Ford Escape and the Mercury Mariner. At this time they are eligible for a set amount, this being $2,200 for the 2 wheel drive version and $3,000 for the 4 wheel drive version.

To claim this credit you will need to use form 8910 Alternative Motor Vehicle Credit along with filling out the appropriate lines on IRS tax form 1040. This tax credit applies to four separate categories of vehicles, hybrid vehicles, fuel cell vehicles, alternative fuel vehicles and advanced lean burn vehicles. However as the laws now stand this credit is due to be completely phased out by January first of 2010. Of course you should always contact the IRS if you have any further questions.

Sources the IRS and cpa2biz.com