An alternative motor vehicle credit, very simply, is a credit on your taxes given by the federal government based on your use or purchase of an alternative vehicle. An alternative vehicle is a vehicle that uses an alternative fuel source. Currently, this includes mainly hybrid vehicles that have a drive train that is powered both by a rechargeable battery as well as a traditional internal combustion engine.
Most hybrids on the road today qualify for the alternative motor vehicle credit. The alternative motor vehicle credit came into place because of the energy policy act of 2005. This act created the tax credit that is subtracted right from the amount of income tax that you owe on our federal income tax. This can reduce, or it can even eliminate your tax obligations and it does so on a dollar for dollar basis.
The alternative motor vehicle credit is available only to the person who originally purchases a new qualifying vehicle. If a vehicle is leased, it is the leasing company that may qualify the tax credit.
It is important to understand that the alternative motor vehicle credit only applies for a limited time on any given vehicle. The way it works is this. Taxpayers can claim the full amount of the credit up to the end of the first calendar quarter after the manufacturer sells 60,000 hybrid vehicles. After that, you can claim half of that credit during the second and third calendar quarters. During the fourth and fifth calendar quarters, you only get 25% of the credit and after that you get none of the credit.
Essentially, the amount of the alternative motor vehicle credit you get will depend on how many hybrids the manufacturer has sold. If the manufacturer has sold many hybrid vehicles, as is the case with companies like Toyota, you may not qualify for the alternative motor vehicle credit amount that you would with another manufacturer.
The alternative motor vehicle credit currently gives you a credit of up to $1300 depending on the particular vehicle.
If you are considering a hybrid vehicle so that you can get the alternative motor vehicle credit you should do some investigation as to whether that particular manufacturer’s vehicles still qualify for the alternative motor vehicle credit and as to how much that alternative motor vehicle credit comes out to be.