Making a New Car Tax Deduction

For the 2010 income tax year, new car tax deduction categories are now limited to the purchase of a hybrid or energy-efficient vehicle. The deduction that allowed federal and state taxes to be deducted from income tax was valid for the 2009 income tax year only, and had to be declared on your 2009 tax return. Learn more below about other tax credits available if you purchased a new fuel-efficient or alternative fuel vehicle in 2010.

Hybrid Vehicles Tax Credit

Under the Revised Energy Policy Act of 2006, these are vehicles that run on gas and electric motors together. The first 60,000 vehicles sold by each major automaker qualified to receive the tax credit. It was phased out gradually for each automaker as they reached the 60,000 sales number. By the end of 2009, Honda, Toyota, Mazda and Lexus had all reached their sales limits, so you can no longer claim the tax credit on hybrids purchased from these automakers in 2010. Ford's limit was reached on March 31, 2010, so you can claim 25 percent of the $3,000 tax credit, equaling $750 on a Ford hybrid vehicle you bought before that date. Ford's eligible vehicles include the Escape Hybrid, Fusion Hybrid, Mercury Mariner Hybrid 4X2 ($750 tax credit), the Mercury Mariner Hybrid 4X4 ($650 tax credit) and Mercury Milan Hybrid ($850 tax credit). Check with the dealership where you went to purchase your hybrid vehicle in 2010, to see if they are still eligible for the tax credit.

Other Energy Efficient Vehicles

Tax credits are also available for the purchase of hydrogen fuel-cell vehicles, plug-in electric and electric hybrid vehicles, advanced lean burn internal combustion engine cars, a few light-duty diesel engine vehicles and alternative fuel vehicles. For example, the Chevrolet Volt, a plug-in electric hybrid, had an initial credit of $7,500 claimable starting in January 2010. If you bought a Volt after July 2010, you can claim 50 per cent of this credit, or $3,750. Starting in January 2011, the credit is reduced to 25 percent or $1,875. This credit will be phased out completely for the Volt on June 30, 2011.

Alternative Fuel Vehicles (AFV)

Some AFVs are eligible for a tax credit. These include vehicles that operate only on compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. The methanol alternative fuel credit has been phased out. Use the IRS Form 8910, Alternative Motor Vehicle Credit to complete your claim.

How to Claim a Credit

You must submit an IRS form 8910, the Alternative Motor Vehicle Credit, along with the original bill of sale for your vehicle from the car dealer. Keep a copy of your bill of sale for your own records. For a plug-in electric vehicle, use the IRS form 8936, Qualified Plug In Electric Drive Motor Vehicle Credit, and attach it to your 2010 tax return. If you are using this car for business, claim your credit using IRS Form 3800, General Business Credit.

How Old Can My Car Be for Me to Claim the Credit?

You can claim this tax credit for new vehicles bought after January 2006, provided you remain the original owner, subject to the 60,000 vehicle quota discussed above.


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