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Electric
Vehicle Credit vs. Clean-Burning Fuel Deduction.
Are They the Same?
Not
exactly. One is PRIMARILY electric. The other
may not be electric at all. One is a credit. The
other is a deduction, taken as an adjustment on
Form 1040. Vehicles eligible for one are probably
NOT eligible for the other. So how do you sort
through it all? Let’s take a closer look.
Electric
Vehicle Credit
If you purchased a qualified electric vehicle
this year, a credit is available regardless of
whether the property is used in a trade or business.
The credit is generally 10% of the cost of each
qualified electric vehicle you placed in service
during the year and is claimed by completing Form
8834. If your vehicle is a depreciable business
asset, you must reduce the cost of the vehicle
by any section 179 deduction before figuring the
10% credit. The maximum credit is $4,000.
Qualified
Electric Vehicle
To be considered a qualified electric vehicle,
it must meet all the following requirements:
-
It
is a motor vehicle powered primarily by an electric
motor drawing current from rechargeable batteries,
fuel cells, or other portable sources of electrical
current.
-
You
were the first person to use it.
-
You
acquired it for your own use and not for resale.
It
has never been used as a non-electric vehicle.
Note that most hybrids do NOT qualify.
Clean-Burning
Fuel Deduction
Clean-burning fuel vehicles are a different animal.
Vehicles powered by any of the following fuels may
have a portion of their cost eligible for the Clean-Burning
Fuel Deduction:
-
-
-
-
-
-
Any
other fuel that is at least 85% alcohol
There
are exceptions. IRS has certified the following
hybrid vehicles as being eligible for the Clean-Burning
Fuel Deduction, even though they use gasoline
(which is NOT one of the 6 categories of fuel)
for part of their power:
-
Toyota
Prius - 2001, 2002, 2003 and 2004
-
Honda
Insight - 2000, 2001 and 2002
-
Honda
Civic Hybrid – 2003
Note
that these gasoline/electric hybrid vehicles,
which are not powered primarily by an electric
motor are not qualified electric vehicles for
the Electric Vehicle Credit, even though they
do qualify for the Clean-Burning Fuel Deduction.
Reduction
of Credit in Future Years
Under current law, the clean-burning fuel deduction
will be reduced incrementally until it expires
beginning 2007. Purchasers of IRS-certified cars
will be able to claim a deduction of $2,000 if
the vehicle was placed in service on or before
December 31, 2003. The $2,000 maximum deduction
will be reduced by 25% for vehicles placed into
service in 2004, by 50% in 2005, and by 75% in
2006. No deduction will be allowed for vehicles
placed in service after December 31, 2006.
Sorting
it all out
With one exception, vehicles that qualify for the
credit do not qualify for the deduction. Only vehicles
that are PRIMARILY electric would qualify for both.
From January 2004
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