There has been a lot of talk in recent years about alternative fuel. With the supply of oil dwindling, the government has begun to offer incentives to those who choose to use energy from other sources. One such incentive is the Alternative Motor Vehicle Credit.

This credit came about as part of the Energy Policy Act of 2005. It was designed to offset the cost of vehicles that operate using alternative fuel sources. These vehicles are becoming more widely available, but their cost has been prohibitive to many consumers who would like to purchase them.

Credits are available for four different types of vehicles:

1. Hybrids – These vehicles have engines that use both an internal combustion engine and a rechargeable battery. They use some gasoline, but they get much better gas mileage than solely gas-powered vehicles.

The credit for this category is phased out after the fifth quarter following the quarter in which each manufacturer sells its 60,000th hybrid. Ask your dealer to find out how much of a credit the hybrid you are considering qualifies for.

2. Fuel Cell Vehicles – Fuel cells are unique in that they convert chemical energy into electricity. In most cases, the chemicals used are hydrogen and oxygen. This produces no by-products except for water and heat.

The credit allowed for these vehicles depends on the gross vehicle weight. Passenger automobiles and light trucks also qualify for an additional amount based on fuel economy.

3. Qualified Alternative Fuel Motor Vehicles and Heavy Hybrids – This is the only category that allows vehicles that have been converted from traditional fuel to alternative fuel. There are several types of fuel that can be used, including compressed or liquefied natural gas, propane and hydrogen. Liquefied natural gas and propane may be mixed with gasoline in these vehicles.

4. Advanced Lean-Burn Technology Vehicles – These vehicles have a special internal combustion engine that uses more air than is necessary for combustion of fuel. They must also have direct fuel injection and have a minimum of 125% of the 2002 fuel economy rating.

The credit for this type of vehicle is based on fuel economy compared to that of the 2002 model year. Buyers also qualify for an additional credit that is figured based on lifetime fuel savings.

In order for their vehicles to qualify for the Alternative Motor Vehicle Credit, manufacturers must adhere to strict government guidelines. Your dealer should be able to tell you whether a specific model is eligible. The IRS also maintains a list of vehicles eligible for the credit on its website.

Buying an alternative fuel vehicle is good for the environment, and it saves natural resources. And now you can get a sizable tax credit for the tax year in which you purchase one. If you’ve ever considered buying an alternative fuel vehicle, now is the time to get serious about it.

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