IRS Certifies 2004 Autos for Clean Fuel Deduction

Section 179A Tax Deduction

The 2004 Toyota Prius qualifies for the clean-burning fuel deduction, so taxpayers who purchase a new Prius can claim a tax deduction of up to $2,000. IR-2003-114 (10/6/03).

The IRS has announced that the 2004 Toyota Prius is eligible for the clean-burning fuel deduction under Code Section 179A, so that a taxpayer who purchases a new Toyota Prius may claim a tax deduction of up to $2,000 on Form 1040. The IRS previously certified the Toyota Prius for model years 2001, 2002, and 2003; the Honda Insight for model years 2000, 2001, and 2002; and the Honda Civic Hybrid for model year 2003. The new Ford Escape Hybrid has also been certified by the IRS.

Under Code Section 179A, individuals may claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. The amount of the deduction for the Toyota Prius was set after the manufacturer documented the incremental cost related to the vehicle's electric motor and related equipment. The deduction is allowed as an above-the-line deduction, so that taxpayers do not have to itemize deductions to claim it. The taxpayer must be the original owner and take the one-time deduction in the year in which the vehicle is originally used.

The clean-burning fuel deduction will be reduced incrementally until it expires in 2007. Purchasers of IRS-certified cars will be able to claim a deduction of $2,000 if the vehicle is placed in service on or before December 31, 2003. The $2,000 maximum deduction will be reduced by 25 percent for vehicles placed into service in 2004, by 50 percent in 2005, and by 75 percent in 2006. No deduction will be allowed for vehicles placed in service after December 31, 2006.

	Copyright © 2005 Regalia & Associates	Last Modified January 1, 2005