766 / What is the alternative motor vehicle credit that may be taken against the tax?

See Q 767 for information on the expanded tax credit for clean vehicles under the Inflation Reduction Act.

The alternative motor vehicle credit is equal to the sum of: (A) the new qualified fuel cell motor vehicle credit; (B) the new advanced lean burn technology motor vehicle credit; (C) the new qualified hybrid vehicle credit; (D) the new qualified alternative motor vehicle credit; and (E) the plug-in conversion credit.¹ (This credit replaces the prior deduction for qualified clean-fuel vehicle property, which sunset on December 31, 2005.)²

(A) The new qualified fuel cell motor vehicle credit is based on the weight of the vehicle, and ranges from $8,000 (8,500 pounds maximum) to $40,000 (over 26,000 pounds).³ The amount determined above with respect to a passenger automobile or light truck is increased if the vehicle achieves certain fuel efficiencies, ranging from $1,000 to $4,000.⁴ The credit for passenger automobiles and light trucks can be as much as $12,000.

The term “new qualified fuel cell motor vehicle” means a motor vehicle: (1) propelled by power derived from one or more fuel cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel that is stored on board the vehicle in any form and may or may not require reformation prior to use; (2) that, in the case of a passenger vehicle or light truck, has received a certificate that the vehicle meets certain emission levels; (3) the original use of which begins with the taxpayer; (4) that is acquired for use or lease by the taxpayer and not for resale; and (5) that is made by a manufacturer.⁵

(B) The amount of the new advanced lean burn technology motor vehicle credit is based on fuel economy, and ranges from $400 to $2,400. The amount of the credit is increased by the conservation credit (based on lifetime fuel savings), and ranges from $250 to $1,000.⁶ The credit for passenger automobiles and light trucks can be as much as $3,400.

The term “advanced lean burn technology motor vehicle” means a passenger automobile or light truck: (1) with an internal combustion engine that (i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel, (ii) incorporates direct injection, (iii) achieves at least 125 percent of the 2002 model year city fuel economy, and (iv) for 2004 and later model vehicles, has received a certificate that the vehicle meets or exceeds certain emission standards; (2) the original use of which begins with the taxpayer; (3) is acquired for use or lease by the taxpayer and not for resale; and (4) is made by a manufacturer.⁷

(C) The new qualified hybrid motor vehicle credit amount is determined as follows: (1) If the new qualified hybrid motor vehicle is a passenger automobile or light truck weighing no more than 8,500 pounds, the credit amount is the sum of the fuel economy amount and the conservation credit (see (B), above).⁸ (2) For other motor vehicles, the credit amount is equal to the applicable percentage of the “qualified incremental hybrid cost” (i.e., the excess of the manufacturer’s suggested retail price for such vehicle over the price for a comparable gas or diesel powered vehicle) of the vehicle as certified.⁹ The credit for passenger automobiles and light trucks can be as much as $3,400.

A “new qualified hybrid motor vehicle” means a motor vehicle that: (1) draws propulsion energy from onboard sources of stored energy that are both (i) an internal combustion or heat engine using consumable fuel, and (ii) a rechargeable energy storage system; (2) has been certified as meeting specified emission standards; (3) has maximum available power meeting certain percentages based on weight; (4) the original use of which begins with the taxpayer; (5) is acquired for use or lease by the taxpayer; and (6) is made by a manufacturer.¹⁰

(D) The new qualified alternative fuel motor vehicle credit is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle.¹¹ The “applicable percentage” is 50 percent, plus 30 percent if the vehicle has been certified as meeting certain emission standards.¹² The “incremental cost” (i.e., the excess of the manufacturer’s suggested retail price for the vehicle over the price for a gas or diesel powered vehicle of the same model) cannot exceed $5,000 to $40,000 based on the weight of the vehicle.¹³

“New qualified alternative fuel motor vehicle” means any motor vehicle: (1) that is only capable of operating on an alternative fuel; (2) the original use of which begins with the taxpayer; (3) is acquired by the taxpayer for use or lease but not for resale; and (4) is made by a manufacturer.¹⁴ “Alternative fuel” means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.¹⁵

Certifications and Limitations for Hybrid Vehicles

. The tax credit for hybrid vehicles may be as much as $3,400 for those who purchase the most fuel-efficient vehicles. (For the guidance used by manufacturers in certifying credit amounts, see Notice 2006-9.)¹⁶ The Service cautions that even though a manufacturer has certified a vehicle, taxpayers must meet the following requirements to qualify for the credit:

(1) The vehicle must be placed in service after December 31, 2005, and purchased on or before December 31, 2009.¹⁷