The Ins and Outs of the Hybrid Automobile Owners Tax Credit
Despite the fact that a growing number of automobile manufacturers have made movements in recent years towards producing hybrid cars in the United States, the federal government has been slow in working to ensure more long term tax credit for consumers who elect to purchase a hybrid vehicle. Industry experts have concluded that in order for more consumers to take the plunge and actually make the purchase of a hybrid automobile, a tax credit or deduction will need to be implemented by the federal government that will be in place for an extended period of time.
In the Spring of 2002, the IRS did declare that gasoline-electric hybrid vehicles were eligible for certain tax deductions. The taxing authority concluded that hybrids qualified for tax deductions as permitted under the Energy Policy Act of 1992. The IRS surmised that hybrids did in fact meet the definition of “clean fuel vehicles” as set forth within the Energy Policy Act.
The initial decision by the IRS constituted good news for consumers interested in owning a hybrid automobile. However, as with many issues related to taxation and tax breaks, strings instantly were attached. The IRS ruled that the deduction ceiling beginning in 2002 would not exceed $2,000. The deduction would reduce annually $500 until the end of 2006 when the benefit would phase out entirely.
Congress eventually entered into the foray in regard to crafting a more permanent plan to allow for consumers some sort of tax credit or deduction in relation to hybrid autos. The U.S. Senate took up what has become known as the CLEAR Act in 2004. The legislation made it through the Senate providing for permanent tax credits for hybrid auto owners. When the bill reached the House of Representative, provisions relating to tax credits for hybrid owners were watered down to next to nothing.
In early 2005, the U.S. Congress did enact a temporary measure through which the original $2,000 deduction scheme originally promulgated by the IRS three years earlier would be reinstated for fiscal year 2005. Nevertheless, the deduction will phase out in 2006 as established in 2002 by the IRS unless Congress enacts further legislation to create a new tax deduction or credit for owners of hybrid automobiles in the United States.
The issue of a tax deduction or tax credit relating to the ownership of a gasoline-electric car is expected to remain a divisive issue at the Congressional level.
Get the facts before you invest in a hybrid vehicle!