With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding tax incentives for hybrid vehicles. This article clarifies the issue for you.

Tax Deductions for Your 2005 Hybrid Automobile

People buy hybrid vehicles for different reason. They are good for the environment. They get much better mileage, which saves money. There are tax incentives for buying them. With the recent energy plan put in place by the federal government, there is a lot of confusion regarding the tax incentives.

Specifically, the question for most people is whether they can claim a tax deduction or a tax credit when they buy a hybrid. Here is the breakdown:

The Good If you purchased a hybrid vehicle in 2005, you can claim a tax deduction.

The Bad If you purchased a hybrid vehicle in 2005, you cannot claim a tax credit.

The Ugly If you had waited till 2006, you could have claimed a tax credit.

Tax credits save you a lot more money than tax deductions. Tax deductions are applied to your gross income like any other deduction. This helps lower your tax bill, but tax credits are much more powerful. Tax credits are not taken out of your gross income. Instead, tax credits are taken out of the exact amount of tax you owe the government. If you owe the government $10,000 after filling out your tax return and can claim a $2,000 tax credit, your final tax bill is $8,000.

You are stuck with a tax deduction tax deduction if you purchased a hybrid in 2005, but at least it is a nice one. The deduction amount is $2,000 for vehicles certified by the IRS. They include:

Ford Escape Hybrid: Model Year 2006

Mercury Mariner Hybrid: Model Year 2006

Lexus RX 400h: Model Year 2006

Ford Escape Hybrid: Model Year 2005

Toyota Prius: Model Years 2001 through 2006

Toyota Highlander Hybrid: Model Year 2006

Honda Insight: Model Years 2000 through 2005

Honda Civic Hybrid: Model Years 2003 and 2005

Honda Accord Hybrid: Model Year 2005

To claim this deduction, you must have purchased a NEW hybrid. If the hybrid was used, you get nothing. Assuming it was new, the deduction is claimed on line 36 of the 1040 form. Make sure to write Clean Fuel in the space provided.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax and taxes. Visit us to read more tax articles and our new tax credits page.

Hybrid Vehicles and Tax Benefits
You have to love car dealers. With the passage of the Energy Policy Act of 2005, car dealers are screaming about the tax benefits of buying these vehicles. Heres the scoop.Deductions and CreditsThe Energy Policy Act of 2005 made a major modification ...

Automobile Expenses - Tax Write-Offs
If you use a vehicle for conducting business, you can deduct certain automobile costs from your tax bill. This is true even if you use the vehicle for personal and business needs.Automobile DeductionsThe powers that be have historically written secti...

Tax Credit Amount for Lexus GS 450 Hybrid Issued By IRS
Prior to January 1, 2006, you were restricted to claiming a $2,000 tax deduction if you purchased a hybrid car. Now you can claim a tax credit, which is much more valuable.Conspiracy theorists often offer rather exotic arguments about how the governm...

Tax Deductions You Might Have Missed
As April 15th draws ever closer, many taxpayers are starting to actively hunt for tax deductions to lower their bill to Uncle Sam. Here are a few that many people miss out on.The real estate market has obviously been on steroids for much of this deca...

Honda Natural Gas Cars Issued Massive Tax Credits By IRS
Between global warming and massive increases in fuel prices, many people are reconsidering their transportation. Honda has two natural gas cars the IRS absolutely loves.In 2005, the federal government passed a new energy policy act that created tax b...

Take Time to Trim a Few Bucks of Your Taxes
Its prudent taxpayers to plan ahead for credits and deductionsThanks to the 2006 federal tax credit many people are able to buy their dream car. This credit applies to a variety of hybrid vehicles, but unfortunately it begins to phase out after the m...

Tax Deductions on Car Donation Explained
Any donation you make to help out a worthy cause can also help you with your taxes. If you have an old car parked in your garage and you dont know what to do with it, car donation is a wonderful way to help a charity. Although the car donation laws h...

IRS Adjusts Revenue Procedure on Mileage
Recent gas price trends have impacted the standard mileage rate allowed by the IRS. Small business owners should be aware of the latest adjustments and take full advantage of all available deductions.The IRS normally updates the mileage rates once a ...

Small Business Tax Deductions
Small business tax deductions are implemented by the government to encourage entrepreneurship and investment. A business owner can save large amounts of money through these small business tax deductions. Special small business tax deductions are gra...

3 Tips For Getting The Most Out Of Tax Deductions
Hundreds of tax deductions that could be filed and claimed go unaccounted for each year. Unfortunately, it is just because people do not realize that they can take them that they do not. Yet, there are many ways in which you can insure that you are...