Regulations and Incentives

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Federal Tax Incentives

Federal tax deductions and credits are available for the purchase of qualifying clean-fuel vehicles, electric vehicles and hybrids, and clean fuel refueling or recharging property. These incentives are available to individuals and businesses. The US Department of Energy has details on all federal incentives on this page. Some of the major incentives are summarized below.

Gasoline-Electric Hybrid Vehicle Tax Credit  EPAct 2005 provided a tax credit for HEVs that was determined by the vehicle's fuel economy and lifetime fuel savings. Together, the two part formula allows for a maximum credit of $3,400. In practice, the maximum credit achieved by an HEV is the $3,150 by the Prius. The credit is phased out based on a manufacturers' sales volumes - sales of 60,000 HEVs is the trigger. Two quarters after the 60,000 vehicle target is reached, the credit is cut in half. Two quarters after that, the credit is eliminated entirely. As of June 2006, only Toyota had reached this sales target. Beginning in October 2006, credits for Toyota HEVs will be reduced in half. Barring a change of heart from Washington (DC), credits for Toyota's HEVs will expire on Oct. 1, 2007.

Tax Deduction for Clean Fuel Infrastructure  A tax credit of 30% of the value of qualifying alternative fuel infrastructure, up to $30,000, was passed as part of EPAct 2005. Residential fueling equipment can qualify for a $1,000 credit. The credit expires Dec. 31, 2009. The IRS has published Form 8911 to be used to claim this credit.

Alternative Motor Fuel Vehicle Credit  EPAct 2005 also provided for a tax credit for the purchase of AFVs put into service after Jan. 1, 2006. The tax credit is for 50% of the incremental cost of the vehicle. Vehicles with near-zero emission levels can qualify for an additional credit of 30% of the incremental cost. The credit is available for a variety of alt fuels and advanced technology vehicles and has maximum levels that are based on a vehicle's weight:

• GVW < 8,501 -- max credit of $5,000

• 8,500 < GVW < 14,001 -- max credit of $10,000

• 14,000 < GVW < 26,001 -- max credit of $20,000

• 26,000 < GVW -- max credit of $30,000

The credit expires on Dec. 31, 2010. The IRS has determined that the credit applies to OEM and converted vehicles. See the IRS page for details.

Electric Vehicle Tax Credit  A tax credit for the purchase of qualified EVs is provided under EPAct Public Law-102-486, Title XIX-Revenue Provisions, Sec. 30. To qualify for the credit, the vehicle must be powered primarily by an electric motor drawing current from batteries or other portable sources of electric current.  All dedicated, plug-in EVs qualify for the tax credit. The size of the credit is 10% of the cost of the vehicle, up to a maximum credit of $4,000.  Beginning in 2001, the size of the credit is reduced by 25% per year until the credit is fully phased out.   The credit was extended until 2007 by the Working Families Tax Relief Act of 2004. In 2006, the credit is reduced by 75%; in 2007, the credit expires. The tax credit for EVs is available for business or personal vehicles. Gasoline/electric hybrid vehicles, such as the Honda Insight, Toyota Prius and Honda Civic HEV, that are not powered primarily by an electric motor are not qualified electric vehicles.  However, these HEVs qualify for the tax credit described above.