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I'm a new owner of a 2005 Toyota Prius and was informed by the loan officer at the dealer that I was eligible for a 2500 tax deduction at the end of the year. Since that time I have read several articles on this site that relate to some of the confusion surronding such deductions.

I have found the following link on the IRS web site which shows that certain hybrid vehicles including the 2005 Toyota Prius and other older vehicles, are eligible for a 2000 dollar write off in 2005:

http://www.fueleconomy.gov/feg/tax_hybrid.shtml
 

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Yes, that's the straight poop on the Federal tax deduction, or more precisely an "adjustment to income" (the difference is that you don't have to itemize to claim an adjustment to income). It is *not* a Federal tax credit.

Some states also have their own deductions, adjustments, or credits. Perhaps your loan officer was thinking of this? Or perhaps they were merely mistaken.
 

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richard schumacher said:
Yes, that's the straight poop on the Federal tax deduction (or more precisely "adjustment to income").

Some states also have deductions or credits. Perhaps your loan officer was thinking of this? Or perhaps they were merely mistaken.
Since I will be buying my second prius, do I get another tax deduction?
 

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Yes, but I was under the impression it was lowered this (next) year.

Also, it's a 3 year commitment. I moved to another state, and apparently the IRS saw me not registering it in the same state as me selling it, and denied the deduction I took in '02 on an audit last (this) year.
 

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gasik1417 said:
Since I will be buying my second prius, do I get another tax deduction?
Uhh... ask the IRS. They may take the position that you, the buyer, can't drive both of them at once, so maybe they won't allow it on #2. And don't forget the reduction of the "deduction" if you keep the car less than three years.
 

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$2000 deduction is correct. It was supposed to have dropped to $500 but congress extended the full deduction to tax years 2004/2005. After that, it reverts back to its original scheduled phase out unless congress again intervenes.

You may have state and local tax breaks as well.
 

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Wow!!! You got to be kidding. This must have come up by now and I'll take anyones word for it until I see my tax guy next February. Has anyone sold a car after taking the deduction and given anything back after the first year?
I've always been under the impression it has been a deduction for the original owner and not available to the 2nd purchaser. Don't ever remember anyone mentioning 3 yrs ownership.
 

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Thanks to the Oct. 2004 signed "Working Families Tax Relief Act of 2004,"
the Clean Fueled Vehicle deduction has been extended. The amount of
the deduction for purchases in 2004 and 2005 are now the old amount of
$2000, whereas prior to the act the amounts were $1500 and $1000
respectively. 2006 is still $500, with the sunset still in 2007.
http://www.irs.gov/newsroom/article/0,, ... 46,00.html
http://www.irs.gov/newsroom/article/0,, ... 49,00.html

For information on how to file:
http://www.toyota.com/vehicles/2005/prius/tax.html

and see the IRS Publication 535 "Business Expenses," chapter 12, for
the Clean Fueled Vehicle federal income tax DEDUCTION.
http://www.irs.gov/pub/irs-pdf/p535.pdf or
http://www.irs.gov/publications/p535/ch12.html

more info for state/province/local: http://autos.groups.yahoo.com/group/toy ... 963256550/

the 3 year recapture info is at: http://www.irs.gov/publications/p535/ch12.html#d0e10510

You can claim the deduction for each qualifying vehicle that you purchase. So, if you buy 2 Prius in 2005, you can claim 2x $2000 (=$4000) off of your income for tax year 2005. (I filed once in 2001 for my 2001 Prius, and filed again in 2003 for my 2004 Prius.)

Just remember that used vehicles do not qualify (although with the proper paperwork from your dealer a TRAC/demo might), and that leased Prius do not qualify.

You do not need to itemize to take the deduction.

Your individual state may have other programs available. (MA used to let you carry the federal deduction onto your state income tax, but the vehicle had to be purchased by the end of calendar/tax year 2004. Some states, like OR, CO, WV, give a separate tax credit for hybrids.)
 

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Thanks! Just printed out the IRS letter to put in my tax file as a reminder. Purchased the Prius on a whim (had to replace a company car, since I'm changing jobs), found out while paying for it that DC does not charge sales tax, so 1.5K stayed in my pocket, plus a 2K deduction. Loving it so far!!

Cheers,
Jeff
 
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