As discussed in our Year-End Tax Planning Guide for 2005, on August 8, 2005, the Energy Tax Incentives Act of 2005 (the "Energy Act") was signed into law. Although it contained $14.5 billion in tax incentives designed to improve energy production, transportation and efficiency, its provisions were not effective until 2006 and included tax credits for individuals who purchase vehicles powered by alternative fuels.
The Energy Act replaced the $2,000 above-the-line deduction previously available for the purchase of hybrid vehicles through December 31, 2005, with a new qualified hybrid motor vehicle tax credit for qualified hybrid passenger automobiles and light trucks purchased after that date. A qualified vehicle may not weigh more than 8,500 pounds, must be purchased before a statutorily-defined number of qualified vehicles are purchased and must meet certain fuel-economy requirements.
