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Clean Burning Fuel Deduction

A relatively new IRS Code Sec. 179A allows taxpayers to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines.  IR 2003-114 (October, 2003) states that buyers of a model year 2004 Toyota Prius bought and placed in service last year may claim a deduction of up to $2,000 for the 2003 tax year.  If the vehicle is placed in service in 2004; this amount is reduced by 25%. 

The IRS has certified more Honda hybrid gas-electric automobiles as being eligible for the Code Sec. 179A clean-burning fuel deduction.  The IRS previously certified the 2000 to 2002 Honda Insight, and the Honda Civic Hybrid for 2003.  Now, the IRS has certified the Purchasers of the Honda Insight, model years 2003 and 2004, and Honda Civic Hybrid, model year 2004, may claim a tax deduction of up to $2,000 for tax year 2003 or up to $1,500 for tax year 2004. These deductions are eligible in the year that the purchaser first put the vehicle to use.

Purchasers of IRS-certified cars will be able to claim a deduction of up to $2,000 if the vehicle was placed in service on or before Dec. 31. 2003. The $2,000 maximum deduction will be reduced by 25% for vehicles placed in service in 2004, by 50% in 2005, and by 75% in 2006. No deduction will be allowed for these vehicles placed in service after Dec. 31, 2006.

The deduction must be taken in the year the vehicle was originally used. The taxpayer must be the original owner.   Leased vehicles do NOT qualify for the deduction.  The deduction is claimed as an adjustment to income.  Taxpayers do NOT need to itemize to get it.