Tax Tip of the Week
For the week of March 29, 2004

Cut pollution, and cut your taxes too

Did you know you can be environmentally conscious and cut your taxes at the same time? You could qualify for special tax breaks if you buy a hybrid vehicle or an all-electric vehicle.

A hybrid vehicle combines an electric motor with a small gasoline engine. Thanks to clever engineering, these vehicles deliver superior gas mileage, sometimes in the range of 50 to 60 miles per gallon. If you buy a hybrid vehicle that has been certified by the IRS, you'll be able to claim a deduction of $1,500 against your 2004 taxes. The deduction is "above-the-line," meaning that you can claim it even if you don't itemize.

So far the IRS has certified certain models of three vehicles - the Toyota Prius, the Honda Civic Hybrid, and the Honda Insight. You must buy the vehicle new to receive the tax break.

There's a different kind of tax break if you buy an all-electric vehicle. That's one powered by batteries or fuel cells. In 2004, you're eligible for a tax credit equal to 10 percent of the cost of the vehicle, with a maximum credit of $3,000. Because this is a credit, it reduces your taxes dollar for dollar. Again, only purchases of new vehicles qualify for the credit.

If you bought a hybrid or electric car in prior years, check with our office. You may be eligible to claim the deduction or credit retroactively. If you're considering a purchase this year, make sure you understand how it will affect your taxes.

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