The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.
The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. Many currently available hybrid vehicles may qualify for the tax credit.
When you go to your tax preparer they will ask you in your tax interview did you purchase a Hybrid vehicle last year this will inform them to attach Form 8910 to your tax return to claim the electric vehicle credit. If you are preparing your own taxes attach Form 8910 to your tax return that's how you claim the credit. If you have anymore tax related questions please feel free to ask here in the forum or via email.
IRS e-file Updates for Tax Year 2006 - New Forms and Schedules for IRS e-file:
Form 1040EZ-T – Request for Refund of Federal Telephone Excise Tax
Form 5695 – Residential Energy Credits
Form 8888 – Direct Deposit of Refund
Form 8900 – Qualified Railroad Track Maintenance Credit
Form 8906 – Distilled Spirits Credit
Form 8907 – Nonconventional Source Fuel Credit
Form 8908 – Energy Efficient Home Credit
Form 8910 – Alternative Motor Vehicle Credit
Form 8911 – Alternative Fuel Vehicle Refueling Property Credit
Form 8912 – Clean Renewable Energy Bond Credit
Form 8913 – Credit for Federal Telephone Excise Tax Paid
Just a little note - the Form 8834 is for electric vehicles (see excerpt below) whereas the Form 8910 is for alternative fuel vehicles.
Electric Vehicle Tax Credit
A tax credit for the purchase of qualified electric vehicles is provided under Section 179A of the Energy Policy Act of 1992; it was extended through 2007 by the Working Families Tax Relief Act of 2004. IRS Form 8834 can be used to calculate the credit for qualified electric vehicles placed in service. The credit amount equals 10% of the cost of the vehicle up to $4,000. This credit is scheduled to be reduced by 75% in 2006 and expire in 2007. To qualify for the credit, the vehicle must be powered primarily by an electric motor drawing current from batteries or other portable sources of electricity. All dedicated, plug-in-only electric vehicles qualify for the tax credit, which is available for business or personal vehicles. A tax deduction of up to $100,000 per location is available for qualified electric vehicle recharging property used in a trade or business.