If you buy a hybrid new, you may be eligible for a one-time federal income tax deduction of up to $2,000! For your vehicle to qualify, the following requirements must also be met: * You must purchase the vehicle new and for your own use, not for resale.

- You must drive it mostly in the United States.
- The vehicle must meet all federal and state emissions requirements.
- Government agencies, tax exempt organizations, and foreign entities are not eligible.

Other requirements may also apply. If any of these conditions change within 3 years of purchase, you may have to return some of the money saved by the deduction.

Hybrid electric vehicle (HEV) owners are eligible for significant tax incentives from the federal government and from many states. Under the IRS Revenue Procedure, Clean Fuel Vehicle section, individuals or fleets who purchased qualified HEVs before the 2004 tax year (by December 31, 2003) were eligible to claim the maximum deduction of $2,000. Federal law phases out the Clean Fuel Tax Deduction during tax years 2004-2006 by 25% each year. Owners of qualified HEVs purchased during tax year 2004 are eligible for a maximum $1,500 deduction.

The tax deduction is taken as an adjustment to income, and a taxpayer need not itemize deductions to claim it. Individuals and businesses can use the instructions in IRS Publication 535 to claim the deduction. HEVs must be new (not previously owned) and purchased without the intent to resell. An amended tax return can be filed to claim the deduction for a previous tax year. Because current light-duty hybrid vehicles are certified as being primarily gasoline powered, they are not eligible for the electric vehicle tax credit (also outlined in IRS publication 535).

To find more information please visit:

- IRS Publication 535 - Clean Fuel Vehicle deduction for individuals and businesses
- Tax Deductions for Hybrid Electric Vehicles
- IRS