The State of Colorado is offering buyers of “green” vehicles a terrific end-of-the-year gift: a tax credit. But, as they say on TV, act now, because this offer won’t last! You have until December 31 to buy a car, SUV, light or medium-duty truck that will also qualify for the credit.
The tax credit has a complicated title: “The Colorado Alternative Fuel Vehicle Income Tax Credit.” But the intention is simple: to get Colorado drivers into less polluting alternative fuel vehicles.
Lots of Fine Print
Qualifying vehicles include electrics and hybrids as well as vehicles that use clean diesel, compressed natural gas, propane, or 85 percent or more ethanol. Ethanol vehicles (E85s) and so-called “mild hybrids” without electric motors, don’t qualify. Vehicles must be registered and titled in Colorado and, as with many tax matters, there are some complicated ground rules. These are some general guidelines:
• The alternative fuels credit for vehicles bought, leased or converted to alternative fuels between January 1, 2011 and January 1, 2012 can be taken only on your 2011 tax return.
• If your credit exceeds what you owe in income tax, you can’t carry the excess credit over to next year, but you can claim a refund.
• You may claim the credit only once.
• If you received other credits, grants or rebates for fuel efficiency, such as from the Federal CARS program, your tax credit will be reduced by the earlier credit’s amount.
• You may claim a credit on a used vehicle if you have a history on the vehicle including proof that prior owners did not claim the credit and why. The state has a formula for calculating how much of a credit you can claim.
How Large Are the Credits?
To figure the amount of your credit, the state compares the price of alternative fuel vehicles with their gasoline-powered equivalents and offers credit for between 50 and 85 percent of the difference. So, the more efficient the vehicle, the higher the percentage credit offered. On alternative fuel luxury cars, it can amount to some pretty hefty discounts.
There are several categories of credits, based on Federal emission standards and the fuel-reduction technology involved. They usually include:
• The cleanest vehicles recognized by the Environmental Protection Agency, including electric, plug-in hybrid and hydrogen fuel cell vehicles – 85 percent credit.
• Diesel-electric passenger vehicles getting 70 mpg or better – 65 percent credit.
• Cars, light and medium-duty trucks converted to diesel-electric vehicles with a resulting 40 percent increase in fuel economy; medium-duty hybrid trucks that get 30 percent better fuel economy than a comparable gas or diesel-powered truck – 75 percent credit.
• Cars and light or medium-duty trucks powered by compressed natural gas (including those with converted engines) – 75 percent credit.
• Vehicles getting 40 mpg of gasoline/gas equivalent or more – includes many hybrids such as the Toyota Prius, Honda Insight, and Civic Hybrid– 75 percent credit.
• Vehicles getting 30 mpg of gasoline/gas equivalent or more, but less than 40 mpg – 50 percent credit. (Go to: http://www.epa.gov/greenvehicles/Index.do and enter the year, state, make and model to see if your vehicle choice qualifies)
Leased Vehicles Are Eligible
If you lease, you also can receive a credit. The amount of your credit is a complicated calculation. You can see an example in the above-referenced state tax publication.
A complete description of the entire tax credit program is available online at http://1.usa.gov/vx8xSB. Click on “Income 9: Alternative Fuel Income Tax Credits.” If you have questions about how it applies to a vehicle you bought or leased in 2011, be sure to consult a qualified accountant or tax attorney.
Colorado’s new car and truck dealers are offering some of the best deals of the year this coming week. This alternative fuels tax credit is just an additional incentive for buying or leasing before 2011 ends.