Tax Deductions for a Fuel-Efficient Car

Electric and fuel-efficient vehicles reduce energy consumption and tax liability.

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Fuel-efficient cars do more than just save gas. They can also make a statement about your dedication to protecting the environment and saving natural resources. Some of them carry special tax credits that help to defray the additional costs of buying a greener car. You can also buy and drive them strategically as a part of your job to further reduce your taxes.

Electric Vehicles

Fully electric vehicles are eligible for a $7,500 federal income tax credit that you can claim in the year you buy them. To claim the credit, you have to buy or finance the car -- leased cars aren't eligible for it. The credit is available as of May 2013, but is set to expire as sales of electric vehicles grow. Specifically, once a given manufacturer produces 200,000 or more electric cars, the credit will begin phasing out in the second quarter after they reach that milestone. Within 1 1/2 years, credits will no longer be available for electric vehicles from that manufacturer.

Plug-In Hybrid Vehicles

Plug-in hybrid cars that run off of an electric motor but have a gasoline engine to recharge their batteries are eligible for the same credit as purely electric vehicles. The credit works similarly to the pure electric vehicle credit. This means that the 200,000 vehicle limit also applies to it and it could phase out for plug-in hybrids as their popularity rises.

Claiming the Credit

To claim the credit, you have to attach Form 8936 to your tax return. While the form doesn't require you to include the receipt from your car, you need to provide identifying data, like its vehicle identification number. You may have to adjust the amount of the credit if the car is also used for business purposes.

The Standard Mileage Rate

If you drive your car for your job for reasons other than commuting and you claim the standard mileage rate instead of claiming your actual expenses, a fuel-efficient car can help to maximize your savings. Regardless of the car you drive, the IRS lets you claim the same rate. For example, the rate for the 2013 tax year is 56.5 cents per mile. If you drive an SUV that gets 18 miles per gallon of fuel and you pay $3.60 per gallon, 20 cents of the allowance goes to gas. Switching to a plug-in hybrid that effectively gives you 72 mpg would reduce your fuel cost to five cents, leaving 51.5 cents per mile to cover your other car-related expenses.