The Alternative Fuel Credit—also called the Alternative Fuel Motor Vehicle or Alternative Motor Vehicle Credit—is a tax credit available to purchasers of certain types of motor vehicles. There are separate alternative fuel tax credits for each of four categories of motor vehicles:

--    Qualified hybrid vehicles

--    Advanced lean-burn-technology vehicles

--    Qualified fuel-cell vehicles

--    Qualified alternative-fuel motor vehicles (QAFMVs) and heavy hybrids.

Manufacturers follow IRS procedures to qualify each of their vehicles for a specific amount of tax credit in one of the four categories.

To be eligible for a tax credit for a qualified hybrid vehicle:

--    You must be the original owner of the vehicle and have purchased it new.

--    You must have purchased the vehicle on or before December 31, 2010, and have placed it in service after December 31, 2005.

--    The vehicle must be used primarily within the United States.

To be eligible for a tax credit for an advanced lean-burn-technology vehicle, you must be the first to use the vehicle and have acquired it for your use rather than for resale. The credit includes a base amount that depends on the vehicle’s fuel economy and an additional credit amount based on the vehicle’s lifetime fuel savings.

There is a limit to the number of qualified hybrid and advanced lean-burn-technology vehicles that are eligible for a tax credit. The phase-out period for the tax credit begins when the manufacturer has sold 60,000 qualified vehicles.

The base tax credit and additional credits for a qualified fuel-cell vehicle depend on the weight of the vehicle and when it was placed in service. New heavy hybrids and both new and converted QAFMVs may also qualify for tax credits.

Learn more about the alternative fuel credit from the IRS.