U.S. Tax Credit and Deduction law posted
There are two income tax benefits specifically available for electric vehicles: (1) a tax credit and (2) an approximate tripling of the annually adjusted dollar limits that generally apply to depreciation deductions for business automobiles and light trucks and vans. An electric vehicle is one powered primarily by an electric motor drawing current from rechargeable batteries, fuel cells, or other portable sources of electrical current.
Tax credit. The tax credit is equal to 10% of the cost of the electric vehicle and is limited to $4,000 for vehicles placed in service in 2004 and 2005. For vehicles placed in service in 2006, the credit is reduced by 75%, i.e., is limited to a maximum of $1,000.
The original use of the vehicle must begin with the taxpayer and the taxpayer can't have acquired the vehicle for the purpose of reselling it. The credit is available whether or not the vehicle is used in a business or an income-producing activity.
A taxpayer's “basis” (i.e. cost for tax purposes) in the vehicle is reduced by the amount of the credit. This reduction may create or increase taxable gain when the automobile is disposed of (and, if the vehicle is used in a business or other income-producing activity, decrease depreciation deductions and possibly decrease or eliminate deductible loss on disposition.)
The credit must be “recaptured” (i.e., in essence, be given back) if the vehicle is either (1) modified to be primarily non-electrically powered, (2) used predominantly outside the U.S., (3) leased or owned by a tax-exempt or governmental organization or by a foreign individual or organization or (4) disposed of with the taxpayer knowing or having reason to know that, after the disposition, (1), (2) or (3) will occur.
You should also be aware that a taxpayer's exposure to the alternative minimum tax (AMT) may cause the benefit of the credit to be deferred to a future tax year, causing a reduction in the credit's value. We should consider whether the AMT is likely to adversely affect you in this way (and, if necessary, consider ways we can plan other of your activities in order to prevent the AMT from being a problem.)
Also, because a taxpayer can elect not to take the credit, we should—if you decide to purchase an electric vehicle—decide whether you are one of the relatively few taxpayers for whom it is better not to take the credit.
The credit won't be available at all for vehicles placed in service by the taxpayer after 2006.
Depreciation limits relief. The approximate tripling of annually adjusted dollar limits on depreciation applies to electric automobiles placed in service before Jan. 1, 2007. Thus, for example, if you buy a new electric automobile for use in your business and place it in service in 2005, your depreciation for 2005 can be as much as $8,880 (compared to the $2,960 cap for a regular passenger automobile). The depreciation limit for an electric auto in the second year (2006) is $14,200 (vs. $4,700 for a regular vehicle). In order to qualify for these approximately tripled limits, the electric vehicle must be produced by an original equipment manufacturer (i.e., rather than converted to electric power after manufacture.)
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