The Internal Revenue Service (IRS) has announced the addition of the 2006 Lexus RX 400h hybrid to the list of vehicles eligible to earn their owners a clean-burning fuel deduction on their income tax. Taxpayers who buy one of the Lexus hybrids before Jan. 1, 2006 may claim a tax deduction of up to $2000 on their tax year 2005 return.
The clean-burning fuel deduction is a provision of the Working Families Relief Act of 2004 and is limited to up to $2,000 for certified vehicles first put into service in 2005 and $500 for vehicles placed in service in 2006. No deduction will be allowed after 2006.
Federal Law allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines.
This one-time deduction must be taken in the year the vehicle is originally used. The taxpayer must be the original owner. Individuals do not have to itemize deductions on their tax return to claim this deduction. The benefit can be taken as an adjustment to income on the Form 1040.
The amount of the deduction for the Lexus RX 400h was set after the manufacturer, Toyota Motor Sales, U.S.A., Inc. documented for the IRS the incremental cost related to the vehicle’s electric motor and related equipment.
The original purchaser of a qualifying hybrid gas-electric car may deduct $2,000 for the year the vehicle is first used, if that year is before 2006. In 2006, the deduction is scheduled to drop to $500.
The current IRS list of vehicles that qualify for the clean-fuel vehicle deduction includes:
Taxpayers must use Form 1040, not one of the shorter forms, to claim this deduction. They should put "Clean-Fuel" and the deduction amount on the dotted line to the left of line 35, including this amount in that line's total adjustments to income.
If you purchased a vehicle that qualifies for a clean-burning fuel deduction, but did not claim it, you can claim it by filing amended tax return (Form 1040X). Taxpayers usually have up to three years from the original return's due date to file amended returns.
