Regulations and Incentives

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Current Federal Deliberations

Fall 2004: Alternative Fuel and AFV Tax Incentives Signed into Law
Congress recently enacted and the President signed several tax code changes that will benefit fleets using alternative fuels. These changes are part of the Working Families Tax Relief Act of 2004 (P.L. No. 108-311; signed Oct. 4, 2004) and the Jobs Creation Act of 2004 (P.L. No. 108-357; signed Oct. 22, 2004). The laws include the following benefits for alternative fuels and alternative fuel vehicles (AFVs):

Ethanol: Extends and expands the income tax credits for ethanol producers and blenders. In general, this incentive is worth $0.51 per gallon of ethanol blended. It is available through December 31, 2010. Before this change, the tax credits were set to expire in 2007. The extension also includes several modifications that make this incentive available to more producers and blenders.

Biodiesel: Creates a new income tax credit for biodiesel producers that could reduce the cost of using B20 blends by up to $0.20 per gallon. This incentive is worth essentially $0.01 per 1% of agri-biodiesel blended with diesel fuel and a half cent per 1% for blending biodiesel manufactured from recycled oils and waste products. It is available through December 31, 2006.

Electric and Clean Fuel Vehicles: Restores 100% of the value of the electric vehicle credit and clean fuel vehicle deductions for 2004 and 2005 (applies to AFVs and hybrids). It phases out the incentives with a 75% reduction in 2006 and expires thereafter. Prior to the change, the value of the credits and deductions were reduced by 25% in 2004 and 50% in 2005 and expired at the end of 2006. The following are values of the incentives:
* Electric motor vehicles qualify for a tax credit worth 10% of the cost of acquiring an electric motor vehicle or a maximum of $4,000-whichever is smaller. 
* Clean fuel motor vehicles with a gross vehicle weight rating (GVWR) of 10,000 lbs or less qualify for a tax deduction worth up to $2,000. 
* Clean fuel trucks or vans with a GVWR of between 10,001 lbs and 26,000 lbs qualify for a tax deduction worth up to a maximum of $5,000.
* Clean fuel trucks, vans, or buses with a GVWR of greater than 26,000 lbs qualify for a tax deduction worth up to a maximum of $50,000.

Please note that to date the currently available gasoline-electric hybrids only qualify for the clean fuel tax deductions and not the electric vehicle credit, which requires that a vehicle must be "primarily" powered by an electric motor. In addition, the value of the tax deductions is limited to the incremental cost of the vehicle or the costs associated with equipping the vehicle to operate on a clean fuel, such as natural gas, propane, or ethanol.

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For More Information
* U.S. Congress Legislative Information (Thomas) Search for H.R.1308, Conf. Report 108-696; H.R. 4520, Conf. Report 108-755 (includes tax changes.
* IRS Business Expenses, Pub. 535 Explains the electric vehicle credit and clean fuel vehicle deductions. (Remember, the full value is now available for 2004/2005.)
* IRS Electric Vehicle Credit Form 8834