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Clean Fuel Tax Deductions for Alternative Fuel Vehicles Placed in Service Before 2006

Alternative Fuel VehicleAlternative fuel vehicles placed into service before 2006 may be eligible for a one-time clean-fuel vehicle tax deduction of up to $2,000!

Vehicles placed in service after 2005 may be eligible for a new energy tax credit of up to $3,400.

Clean-Fuel Vehicles

Clean-fuel vehicles are motor vehicles designed to be propelled by one of the following fuels:

  • Natural gas (e.g., CNG)
  • Liquified natural gas (LNG)
  • Liquified petroleum gas (LPG)
  • Hydrogen
  • Electricity (e.g., some gasoline/electric hybrids). All-electric vehicles are not eligible for this incentive; they are eligible for the electric vehicle tax credit.
  • Any other fuel that is at least 85% alcohol or ether (e.g., E85)
Additional Requirements
The following requirements must also be met for the vehicle to qualify:
  • You must purchase the vehicle new and for your own use, not for resale.
  • You must drive it mostly in the United States.
  • The vehicle must meet all federal and state emissions requirements.
  • Government agencies, tax exempt organizations, and foreign entities are not eligible.
  • The vehicle must have four or more wheels and be manufactured primarily for use on public streets, roads, and highways (it does not include a vehicle operated exclusively on a rail or rails).

If any of these conditions change within 3 years of purchase, you may have to return some of the money saved by the deduction.

Deduction Amount

The deduction is equal to the cost of the vehicle's engine, the equipment used to store or deliver the fuel, and the equipment used to exhaust combusted gases, up to a maximum of $2,000 for vehicles places in service by the end of 2005.

For vehicles that may be propelled by both a clean-burning fuel and any other fuel, the deduction is limited to the additional cost of permitting the use of the clean-burning fuel, with the same maximum deductions detailed above.

The IRS determines the maximum deduction for specific gasoline-electric hybrid models. Click here for more information on hybrids.

Claiming the Deduction

If you bought your vehicle prior to 2006, you must fill out an amended tax return Form 1040X for that year to claim the deduction.

Other Tax Incentives

Some state and local governments also provide incentives for AFVs. Check with your state or local government or view the U.S. Department of Energy's list of State & Federal Incentives & Laws.

AFVs are not eligibe for electric vehicle tax credits.

Additional Information

DISCLAIMER

The information on this page should not be viewed as an official or legally binding document. Other requirements or exceptions may apply. For more detailed information, please consult an IRS tax representative and/or official IRS publications.

**Some documents on this page are provided as Adobe Portable Document Format (PDF) files. Any PDF file can be downloaded, viewed on screen, and printed using the Adobe Acrobat Reader software. This free software can be downloaded from the Adobe Web site. Installation and setup instructions are provided on this site.

 

 

 

 

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