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Cut emissions and your tax bill

Green could have a double meaning for environmentally conscious motorists at tax time.

Owners of the newly fashionable gasoline-electric hybrid autos can write off $2,000 of their vehicles' costs. This should give Cameron Diaz and other owners of the Toyota Prius, Honda Insight or Honda Civic Hybrid slightly lower tax bills.

The Internal Revenue Service has deemed those vehicles eligible for the clean-burning-fuel tax deduction. The nice thing about the tax break is that it's claimed directly on Form 1040. There's no Schedule A to fill out or income thresholds to meet. Simply enter the amount on the next-to-last line of your Form 1040 and write "Clean Fuel" on the adjacent dotted line. (On 2002 returns, that was line 34; it's line 33 of the draft 2003 form.)

The deduction is not new. It's been offered for the last few years to owners of autos that operate on natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen or any other fuel that's at least 85 percent alcohol. But last year's certification of the hybrids by the IRS simplified and expanded the tax break.

While claiming the deduction is now easier for many drivers, the IRS still has some requirements you must meet.

First, your auto has to be on the IRS approved list. So far this year, the IRS has certified the 2004 Toyota Prius as eligible for the clean-burning fuel deduction. Last year, three Toyotas (the 2001, 2002 and 2003 Prius models) and four Hondas (the 2000, 2001 and 2002 Insight and the 2003 Civic Hybrid) qualified for this tax deduction. Look for the IRS to issue further guidance on newer tax-acceptable models as the 2004 filing season approaches.

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Second, it's a one-time deduction, not one you can take each year for as long as you own the car.

Third, only the car's original purchaser can claim the tax break. So while your pre-owned Prius may still save the ozone layer, it won't save you on your taxes.

Finally, you must take the deduction in the year you bought the car or put it on the road. If you bought a hybrid in 2002, then you had to claim the deduction on your taxes that you filed last April. If you bought it after Jan. 1, then you can claim the tax break on your upcoming 2003 return (due by April 15, 2004).

What if you're an eco-auto pioneer, one of the first purchasers of a hybrid car? All may not be lost. If you bought it a few years ago, you might be able to claim the deduction on an amended tax return. Generally, you can file an amended return within three years of your original filing date, including extensions you were granted. So if you bought an eligible hybrid vehicle in 2000 but didn't claim it on the return you filed on April 15, 2001, check into whether refiguring that year's return could get you some tax money back.

Going greener to get a bigger tax break
Most clean-fuel eligible motorists will use the deduction because they drive hybrid vehicles. But drivers of fully electric autos get an even better break: a tax credit up to $4,000.

The hybrid deduction allows you to reduce your taxable income, which generally produces a smaller tax bill when all the figuring is done. But with a tax credit, once you determine what you owe, the credit will directly cut your tax bill. In this case, it could even wipe out any due taxes.

To qualify for the credit, your new auto must run primarily on an electric motor powered by rechargeable batteries, fuel cells or other portable electric-current sources. The IRS cautions that hybrid vehicles, because they do not depend chiefly on electricity, are not eligible for this better tax break.

By filing Form 8834, a purchaser of an electric car can claim a credit of 10 percent of the auto's cost, up to a maximum of $4,000. Be sure to transfer the credit amount from that form to your Form 1040 (line 53 on last year's return; line 52 of the draft 2003 form), check box "c" and write in the form number.

Limited time offer for clean driving breaks
If you just don't have the cash now for a "green" car, you'll get more environmental write-off chances in coming tax years. But just a few more years, unless Congress extends the breaks.

The $2,000 hybrid auto deduction is still available for the 2003 tax year. Then the deductible amount will decrease by $500 a year until it disappears in 2007.

Electric auto owners will be eligible for the $4,000 tax credit again this year, but the break starts phasing out by $1,000 annually for tax years 2004 through 2006. As with the deduction, the electric car credit will end in 2007.

-- Posted: Dec. 9, 2003

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