With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding tax incentives for hybrid vehicles. This article clarifies the issue for you.

Tax Deductions for Your 2005 Hybrid Automobile

People buy hybrid vehicles for different reason. They are good for the environment. They get much better mileage, which saves money. There are tax incentives for buying them. With the recent energy plan put in place by the federal government, there is a lot of confusion regarding the tax incentives.

Specifically, the question for most people is whether they can claim a tax deduction or a tax credit when they buy a hybrid. Here is the breakdown:

The Good – If you purchased a hybrid vehicle in 2005, you can claim a tax deduction.

The Bad – If you purchased a hybrid vehicle in 2005, you cannot claim a tax credit.

The Ugly – If you had waited till 2006, you could have claimed a tax credit.

Tax credits save you a lot more money than tax deductions. Tax deductions are applied to your gross income like any other deduction. This helps lower your tax bill, but tax credits are much more powerful. Tax credits are not taken out of your gross income. Instead, tax credits are taken out of the exact amount of tax you owe the government. If you owe the government $10,000 after filling out your tax return and can claim a $2,000 tax credit, your final tax bill is $8,000.

You are stuck with a tax deduction tax deduction if you purchased a hybrid in 2005, but at least it is a nice one. The deduction amount is $2,000 for vehicles certified by the IRS. They include: