The Internal Revenue Service has certified the 2005 Honda Insight, Honda Civic Hybrid and Honda Accord Hybrid as eligible for the clean-fuel vehicle deduction. Taxpayers who purchase one of these hybrid vehicles new may claim a tax deduction of up to $2,000 on Form 1040. Under the recently signed Working Families Relief Act of 2004, the clean-burning fuel deduction is up to $2,000 for certified vehicles first put into service in 2004 and 2005. The deduction will be limited to $500 for vehicles placed in service in 2006, and no deduction will be allowed after 2006. The Tax Code allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines. This one-time deduction must be taken in the year the vehicle is originally used. The taxpayer must be the original owner. Individuals do not have to itemize deductions on their tax return to claim this deduction. The benefit can be taken as an adjustment to income on the Form 1040.
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