Buying a hybrid vehicle could provide a tax break

If you're subject to the AMT, you're not eligible for the hybrid tax credit. And some taxpayers who don't owe the AMT, but who are close to the threshold that would require them to pay it, could see their credit reduced. For example, if your regular tax liability is $400 more than the amount you'd pay under the AMT, your hybrid tax credit would be limited to $400.

In addition, the tax credit is currently limited to gas-electric hybrids and the Honda Civic GX, which is powered by natural gas. (That vehicle is available only in New York and California.) The E85 vehicle, which runs on 85% ethanol, isn't eligible for the tax credit, Olsen says.

An energy bill passed in the House would create a $4,000 tax credit for plug-in hybrids bought after Jan. 1, 2008. It would also provide a tax break for people who bike to work, according to Mel Schwarz, partner at Grant Thornton's national tax office. The legislation would let workers receive up to $20 a month from their employers, tax-free, to cover their cycling costs.

But if you're a bicycle commuter, don't get your hopes up. The bill, which would also increase incentives for the development of alternative energy, faces stiff opposition from Republican lawmakers and oil companies.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.

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