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Your Business (05-05) LLC, S
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Explanation and Strategies (04-12) Conditions
Favorable: Consider Selling Your Business Now (04-12) EXIT PLANS: HAVING ONE IS
ALWAYS IMPORTANT (04-11) Is There “Value”
in a “Valuation”? Part 2 (04-08) |
FUEL PROBLEMS MEAN TAX
BENEFITS By: Bart A. Basi and Marcus S. Renwick INTRODUCTION We are all painfully aware of the high
prices of gasoline and oil products.
We are also painfully aware of the fact that higher energy costs are
flowing down into the costs of other products we buy. Such products and services such as food,
dairy, transportation, and travel are leading the way in price
increases. We are all feeling the
pinch for higher energy prices now more than ever. Although we are all painfully
aware of the pinch gasoline and petroleum prices have put on our wallets, not
everybody is aware of the tax incentives the government has created in an
attempt to alleviate the pinch and encourage clean fuel and alternative fuel
products. This article will discuss
the tax incentives the federal government has created in order to help consumers
and encourage more fuel efficient spending habits. CLEAN FUEL VEHICLE
DEDUCTION Many people are aware of the fact
that hybrid vehicles are eligible for some kind of tax deduction. What many people don’t know is that not only
are hybrids eligible for a tax deduction, the vehicle they are driving right
now may be eligible for a tax credit.
Vehicles equipped for E85 are also eligible for the clean fuel credit
as well. Further, other vehicles can
be outfitted to run on alternatives other than gas. The Clean Fuel Vehicle incentive
is the broadest incentive the government has implemented regarding motor
vehicles and it applies to both individuals and business usage. The Internal Revenue Code defines “clean
fuel” vehicles as motor vehicle that uses any of the following fuels: ·
Natural gas ·
Liquefied
Petroleum (LP) ·
Hydrogen ·
Electricity
(hybrids, not battery) ·
85% methanol,
ethanol, or any other alcohol or ether. Liquefied Petroleum and
Natural Gas Not many vehicles on the road
today are outfitted to run on liquefied petroleum or natural gas. Most automobiles produced by manufacturers
today which run on the road will use diesel or gasoline to power them. Fortunately, this tax deduction applies to
not only the portion of the price of newly manufactured vehicles, but it also
apples to equipment installed (including installation costs) to retrofit an
existing vehicle to use the clean fuel.
Even though it may be hard to get an LP or natural gas vehicle from
the manufacturer, it is entirely possible to retrofit an existing vehicle and
take advantage of the deduction. |
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Hydrogen / Fuel Cell Vehicles Hydrogen
vehicles are on the horizon. They are
known also as fuel cell vehicles. They are incredibly efficient, cheap to run,
and only produce water vapor.
Unfortunately, these vehicles are for the most part in the research
and development stage and are not generally available to the car buying
public. Hybrids Hybrids
are well known. Television viewers,
magazine readers, and newspaper readers are already familiar with the
concept. These vehicles use a gas
engine to power a generator. The
generator then sends electricity to either a battery or directly to a motor
on the wheel or wheels depending on the vehicle. The result is a vehicle that will get
significantly better gas mileage. Here
are some examples of the fuel savings resulting from hybrids: A)
One major
manufacturer produces an SUV with a 200 horsepower engine. This particular SUV gets 20 miles per
gallon city and 24 miles per gallon highway.
On the other hand, the hybrid with the 155 horsepower engine gets 36
miles per gallon city and 31 miles per gallon highway. B)
A major
foreign manufacturer produces a vehicle both in non-hybrid and hybrid
form. The non hybrid gets 29 miles per
gallon city and 38 miles per gallon highway.
The hybrid model gets anywhere from 47 – 51 miles per gallon! C)
A domestic
manufacturer produces a full size hybrid truck which gets 18 miles per gallon
city and 21 on the highway on the two wheel drive model and 17 miles per
gallon city and 19 miles per gallon highway in the four wheel drive
models. I can say from my own
experience that the non-hybrid versions get significantly less in terms of
gas mileage. With
a hybrid, you will get significantly better gas mileage. Not only will you get better gas mileage,
you will be eligible for a tax deduction.
If you have purchased a hybrid in previous years and did not take the
deduction, chances are that you can take the tax deduction by filling an amended
tax return which is form 1040X. The
following vehicles qualify for the clean fuel deduction based on the fact
they are hybrids:
The
deduction is officially limited to $2000, but some speculate that buyers of
certain models will be able to take up to $2600 as a deduction for the 2005
year. This means that if you are in
the 35% tax bracket, purchasing one of these vehicles can save you up to
$910, in addition to hundreds of dollars in gasoline purchases! Alcohol, Methanol, and Ether (AKA:E85) Many
reading this article are already driving a vehicle equipped to be operated on
E85 and do not know it. E85 is
typically ethanol which is produced from corn and is currently 40 cents
cheaper than regular gasoline.
However, don’t attempt to put E85 in just any vehicle!!! Only certain vehicles are equipped to run
on E85. These specially equipped
vehicles can also run on regular old petroleum based gasoline. Therefore, you may be driving a car now and not even know that you can not only save
money on the fuel, but also get a tax deduction at the same time. Here is a list of 2004 and 2005 vehicles
than can generally operate on E85 fuel: (However, check with the vehicle’s
manufacturer before fueling with E85) ·
4.7L Dodge Ram
Pickup 1500 Series ·
2.7L Dodge
Stratus ·
2.7L Chrysler
Sebring ·
3.3L Caravan
& Grand Caravan SE (fleet
vehicles only) ·
4.0L Ford
Explorer Sport Trac (select models) ·
4.0L Ford
Explorer (4-door) (select models) ·
3.0L Ford
Taurus sedan and wagon (2-valve) (select models) ·
5.3L Chevrolet
Vortec-engine Avalanche ·
5.3L
Chevrolet Vortec-engine Police Package Tahoe (fleet
only) ·
Mercedes 2.6L
C240 luxury sedan and wagon ·
Mercury 4.0L
Mountaineers (fleet only) ·
Nissan 5.6L
DOHC V8 engine ·
And many
others not of the 2004 and 2005 model year You
can also identify an E85 vehicle by VIN.
Go to the www.e85fuel.com for
further information. Again, do not
fill up any ordinary vehicle with E85.
Just as a gasoline engine will not run on diesel, a regular gasoline
engine will not run on E85. Also, call
your manufacturer and ask if you may fill up your car with E85. Do not rely on this article as basis for
your fueling needs, please! To
obtain the tax deduction, simply put “$______ Clean Fuel” on line 35 of your
1040 or 1040X for the year 2004. The
tax year 2005 tax forms have not been published as of yet, but be sure to
denote the deduction on the 1040 to get the deduction. If you are using the vehicle for business
use, input the deduction on schedule C, schedule F, or your 1120 form as applicable. This
specific tax deduction expires in 2005, but the new energy bill hones and
extends the deduction for a better one.
Under the new bill, clean fuel vehicles will be eligible for a CREDIT
of up to $2500. ELECTRIC VEHICLE CREDIT Not
many electric cars currently occupy the streets. However, electric cars are being
manufactured and are street and freeway legal. A quick search on the internet
reveals a wealth of manufacturers producing vehicles which are potentially
eligible for the credit. Many trips
taken involve trips within a 20 mile radius of home. These vehicles offer an excellent option to
accomplish the task. Best of all,
these vehicles qualify for a 10% CREDIT of up to $4000 against your
taxes. Unlike the clean fuels
deduction, this incentive is a tax credit.
This means that if you buy a $40,000 electric car, $4000 is used as a
credit against your tax liability. This
credit only applies to businesses and not individuals as the Clean Fuel
Deduction. To qualify, the vehicle must
be street legal, have four wheels, and draw current from a rechargeable
battery (not hybrid). Only the
original buyer can claim the credit and the vehicle must be placed into
service by the end of 2005. In 2006,
the credit is reduced to 2.5% of the purchase price and in 2007,
the credit will no longer be available. CONCLUSION We can’t return to the days of 99 cents a gallon gasoline, but we can advance to the days of 50 mile per gallon gasoline! Though it may be rough to dispose of our beloved gas driven SUV’s, the government has enacted legislation to reduce the price of hybrid and alternate fuel cars. The purpose of the incentives is to encourage people to buy them and companies to develop them. If the purchase of one of these vehicles is right for you or if you have already purchased one, remember to deduct the cost of the vehicle or take the credit from your tax liability. The professionals at The Center are familiar with additional ways to take advantages of tax deductions and credits as they come available. Call the experts at The Center for all your tax and estate planning needs. |
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The
Center for Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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