Washington (Feb. 3, 2004) -- Could your client get a tax break for their car? Some Honda drivers could qualify for a tax deduction of as much as $2,000, thanks to a certification by the Internal Revenue Service.

The IRS certified the 2003 and 2004 Honda Insight and the 2004 Honda Civic Hybrid as eligible for the clean-fuel vehicle deduction, which means that taxpayers who purchase a new hybrid vehicle can claim a deduction for the incremental cost of buying a car propelled by a clean-burning fuel. Taxpayers can claim up to $2,000 for tax year 2003 or up to $1,500 for tax year 2004.

Under current law, the clean-fuel vehicle deduction will be reduced incrementally until it expires beginning in 2007. Purchasers of IRS-certified cars can claim a deduction of $2,000 if the vehicle was placed in service on or before Dec. 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, the IRS said.

The one-time deduction must be taken in the year the vehicle was originally used, and the taxpayer must be the original owner. Taxpayers don’t have to itemize to claim the deduction -- they just have to write "clean fuel" on Line 33 of the 2003 Form 1040.

-- WebCPA staff

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