The IRS has certified several vehicles under the new energy tax credit effective for 2006. This credit replaces the $2,000 tax deduction which was previously available to taxpayers who purchased new certified hybrid vehicles before the end of 2005.

The new alternative motor vehicle income tax credit is available for qualified fuel cell motor vehicles, advanced lean-burn technology motor vehicles, qualified hybrid motor vehicles and qualified alternative fuel motor vehicles purchased after 2005. For qualified hybrid vehicles, this credit is currently set to expire at the end of 2009.

The credit is determined differently for each type of vehicle and will not be the same for every vehicle and may vary considerably. For hybrid vehicles, it is based on a combination increased fuel economy and lifetime fuel savings and can be as much as $3,400. A motor vehicle doesn't have to be used in a trade or business or for the production of income in order to qualify for this credit, but it must be new.

• 2006 Ford Escape Hybrid Front WD - $2,600
• 2006 Ford Escape Hybrid 4 WD - $1,950
• 2006 Mercury Mariner Hybrid 4 WD - $1,950
• 2005 Toyota Prius - $3,150
• 2006 Toyota Prius - $3,150
• 2006 Toyota Highlander 4WD Hybrid - $2,600
• 2006 Toyota Highlander 2WD Hybrid - $2,600

Taxpayers who want the maximum available credit may want to consider buying early since the full credit is only available for a limited time. The full credit is only available up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. After that, only 50% of the credit is allowed for the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, 25% in the fourth and fifth calendar quarters, and none after the fifth quarter.

Taxpayers, who are affected by the Alternative Minimum Tax (AMT), should be cautious in that the credit will only offset regular income tax and not the AMT, thus limiting or eliminating the credit for those taxpayers.

Taxpayers using the vehicles for business will be required to reduce the depreciable basis of the vehicle by the amount of the credit allowed. In addition, no credit is allowed for the cost of the vehicle taken as a Sec. 179 expense deduction.

It may be appropriate to call this office in advance to determine what tax benefit the purchase will provide.