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Cars of the future.

The Energy Policy Act of 1992 created a deduction under tax code section 179A for "qualified clean-fuel vehicle property" placed in service after June 30, 1993.

There are two types of qualified clean-fuel vehicles:

1. Vehicles that were originally manufactured to run on clean fuel. (For these, the deduction applies to the cost of the engine, fuel storage tank and delivery and exhaust systems.)

2. Vehicles converted to run on clean fuel. (Here, the deduction applies to the cost of the conversion.)

To qualify for the deduction, the vehicles must satisfy applicable federal and state emissions standards and use clean-burning fuels such as natural gas, liquified natural gas, liquefied petroleum gas, hydrogen, electricity or fuels containing at least 85% alcohol (including methanol or ethanol) or ether.

The deduction is limited to $2,000 for most cars and to $5,000 for trucks and vans with a gross vehicle weight anywhere between 10,000 and 26,000 pounds. The limit is $50,000 for trucks or vans with a gross vehicle weight over 26,000 pounds and for buses seating 20 or more adults.

For pleasure vehicles, the deduction is allowed in the first year of the vehicle's use. The vehicle must not have been acquired for resale, and the taxpayer must be the original owner.

Individuals receive a class-A deduction (for adjusted gross income), which is not subject to the 2% floor on miscellaneous itemized deductions or the overall limit on itemized deductions.

Finally, individuals are not required to use the clean-fuel vehicles in a trade or business to qualify. The deduction is not subject to the luxury auto depreciation limits of tax code section 280F.

Observation: The Energy Policy Act of 1992 also added tax code section 30, which provides a credit equal to the lesser of $4,000 or 10% of the vehicle's cost for each qualified new electric vehicle placed in service after June 30, 1993.

Such vehicles, however, are not eligible for the qualified clean-fuel vehicle property deduction described above.
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Title Annotation:Energy Policy Act of 1992
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Jun 1, 1993
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