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Alternative Motor Vehicle Credits
The Energy Act added four new tax credits to the Internal Revenue Code for purchasers of fuel-efficient vehicles. Collectively, these credits are identified as the Alternative Motor Vehicle Credits and they were enacted to promote the manufacture, development, and use of more fuel-efficient vehicles. The total amount allowed as a credit is equal to the sum of all four credits.
1) The Alternative Motor Vehicle Credit (AMT) is comprised of 4 separate credits:
a. Qualified Fuel Cell Motor Vehicle Credit.
b. Advanced Lean Burn Technology Motor Vehicle Credit.
c. Qualified Hybrid Motor Vehicle Credit.
d. Qualified Alternative Fuel Motor Vehicle Credit.
2) While each of these four credits is computed differently, there are several common elements, including:
a. Qualifying vehicles - there are three common characteristics for vehicles qualifying for all the credits:
1) The original use must commence with the taxpayer (essentially, the vehicle is purchased new.)
2) The vehicle is NOT purchased for resale.
3) The vehicle is produced by a manufacturer (not self-produced)
b. These credits are limited to the extent that regular tax less all other personal credits exceeds AMT.
c. In the event that a qualifying vehicle is sold to a tax-exempt entity, the seller rather than the buyer, may take the applicable credit. Seller must disclose to the buyer the intention to take credit.
d. There is no phase-out or other limitation of these credits based upon AGI or there income test.
e. Depreciable basis must be reduced for any credit taken.
3) Hybrid Motor Vehicle Credit- Since 2003, Code Section 179A has allowed taxpayers an above-the-line deduction of $2000 for purchasing a new qualifying hybrid (electric and internal combustion engines) motor vehicle. Code Section 179A has been repealed as of December 31, 2005 and is being replaced with a new credit. The Hybrid Vehicle Credit is effective for purchases of certified hybrid vehicles placed in service after December 31, 2005. The credit varies between $400 and $2,400 calculated on a sliding scale based on fuel economy increases compared to 2002 model vehicles. To qualify for the credit, in addition to being hybrid, a vehicle must have a gross vehicle weight of 8,500 pounds or less.
4) Advanced Lean Burn Technology Vehicles Credit - Passenger vehicles and light trucks with internal combustion engines that use lean burn technology are eligible for a credit of $400 - $2,400 based on the same criteria as the Hybrid Motor Vehicle Credit. To qualify, passenger automobile or light ruck with an internal combustion engine must
a. Be designed to operate primarily using more air than is necessary for complete combustion of the fuel
b. Incorporate direct injection
c. Achieve at least 125% of the 2002 model year city fuel economy.
d. Meet certain Federal emission standards.
5) Alternative Fuel Vehicle Credit - To qualify for this credit, in addition to the common requirements mentioned above, a vehicle must only be capable of operating on an alternate fuel.
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