Finance Tax Time

Between global warming and massive increases in fuel prices, many people are reconsidering their transportation. Honda has two natural gas cars the IRS absolutely loves.

In 2005, the federal government passed a new energy policy act that created tax benefits for the use of alternative fuel vehicles. Most people are generally aware of this given the fact they get a tax credit break when they purchase a hybrid vehicle. What fewer people know, however, is they get massive tax breaks if they purchase a natural gas powered vehicle such as a Honda Civic GX.

Buried within the language of the new energy policy act is the Alterative Motor Vehicle Credit. The AMVC goes well above and beyond the financial benefits granted to hybrid cars. The act defines four distinct areas where the IRS must issue significant tax credits. Those categories include fuel cell vehicles, advanced lean burn technologies, hybrid vehicles and alternative fuel vehicles. While most vehicles fall within the hybrid classification, new models are coming on the market that fall within the remaining three.

Indeed, the IRS has just issued the tax credit amounts that can be claimed by individuals that purchase the Honda natural gas models. Specifically, the tax credit amount is $4,000 if you purchase either the 2006 or 2007 Honda Civic GX. The car must be purchased new and directly form a dealer. Please note, these cars run only on natural gas, which is why they get such a big tax credit.

This $4,000 tax credit is a major financial incentive for most taxpayers. Unlike a tax deduction, a tax credit is applied directly to the amount of money you owe the IRS. If you prepare your tax returns and determine you owe $7,000 to the IRS, the tax credit would reduce this amount to $3,000. In short, we are talking about major savings.

There is little dispute that we are facing significant issues related to energy. From global warming to our reliance on foreign sources for fuel, things are pretty bleak. The transition to alternative fuel sources makes sense, and now the tax credit for natural gas powered vehicles makes financial sense as well.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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The Energy Act of 2005 created major tax credit incentives for people purchasing hybrid vehicles. The IRS has recently concluded the quarterly review of manufacturers and issued tax credit status.

IRS Updates Hybrid Tax Credits Following Industry Audit

As part of the Energy Act of 2005, the federal government took a major step towards promoting the use of hybrid vehicles. In simple terms, it converted the tax deduction for purchasing a hybrid vehicle into a tax credit. This change was remarkable because a tax credit is very valuable because it is a reduction from the actual amount of tax you owe, not your gross income. Given the fact the tax credit could be over $3,000 for some models, this was a major boon for hybrid car sales!

Alas, the hybrid tax credits were not set in concrete in the tax code. Instead, they are known as phase out credits. In this case, the amount of the tax credit is first set by the IRS after a review of the car model in question. Each quarter, the IRS then totals all of the hybrid sales by manufacturer. Once the total sales reach certain milestones, the tax credit amount is reduced by a percentage. Eventually, the credits are completely phased out and the relevant automobile executives openly weep.

The magic sales threshold for hybrid manufacturers is 60,000 cars sold. Once a manufacturer hits this level, the credits phase out in a labored manner as is typical with taxes. Once the 60,001 car is sold, you still have until the end of the next quarter to buy and claim the full tax credit. Once that date is passed, you can still claim a credit for a new purchase, but at a rate of half the credit amount originally assigned by the IRS so long as you buy during the next two calendar quarters. After those dates pass, the credit is reduced to 25 percent of the original amount for two more credits. Thereafter, it is eliminated completely. Nice and simple, eh?

The IRS recently completed the quarterly audit for the manufactures. As of June 2006, the credit amounts for any Toyota hybrid have been cut in half as the company has met the first hybrid sales threshold. All other manufacturers, however, still qualify for the full tax credit amounts as they have not met said sales levels. The manufacturers include Honda, Ford and GM.

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