How reducing emissions could lower your tax bill

ByABC News
February 27, 2012, 7:54 PM

— -- Republican presidential contender Newt Gingrich says you can't put a gun rack on a Volt, but here's what you can do: merrily cruise past gas stations selling fuel for $5 a gallon.

The downside is that the Chevy Volt, a plug-in hybrid vehicle that can travel an estimated 35 miles gas-free, is a pricey ride. The manufacturer's suggested retail price for the 2012 model is $39,145. The all-electric Nissan Leaf clocks in at $35,200. Ford's all-electric Focus, which has been launched in some markets, is priced at $39,200.

If history is any guide, though, continued high gas prices will generate more interest in these and other fuel-efficient vehicles. And consumers who are willing to embrace these new technologies may be eligible for some tax breaks.

The 2009 economic recovery package introduced a tax credit of $2,500 to $7,500 for plug-in electric vehicles, based on battery capacity. The Volt, Leaf and Focus are eligible for the full credit.

These tax credits are unlikely to disappear any time soon. The federal credit doesn't phase out until the manufacturer has sold 200,000 vehicles. Consumers purchased about 17,000 Volts and Leafs last year.

Drivers who want to switch to a gas-electric hybrid vehicle, such as the Toyota Prius, will have to settle for the savings they'll get at the pump. The tax credit for these vehicles, once worth up to $3,400, expired at the end of 2010.

If you're a handy sort and converted your vehicle to a qualified plug-in vehicle last year, you're eligible for tax credit worth up to 10% of the conversion cost, up to a maximum credit of $4,000, says Helen O'Planick, an enrolled agent in Manchester, Pa. That credit expired at the end of 2011.

Some states offer tax breaks or other incentives — such as the ability to drive solo in HOV lanes — to residents who drive energy-efficient vehicles. To check out your state's laws, go to afdc.energy.gov/afdc/laws/state.

Public transit tax breaks

A jump in gas prices usually results in an increase in the number of commuters who take public transportation. There's also a tax break available for bus riders and straphangers, but it's less generous than it used to be.

Commuters who work for participating companies are eligible to use pretax money to pay for train and bus passes.

The transit benefit, which is similar to flexible spending accounts for unreimbursed health care costs, can reduce public transit riders' costs by 30% or more, says Dan Neuburger, chief executive of WageWorks' Transit Center, which administers the transit benefit for employers.

Typically, employers deduct a specific amount each month from workers' paychecks and deposit the money in a debit card designated for public transportation costs.

In 2011, commuters could put aside up to $230 a month in pretax dollars for public transportation. This year, though, the maximum is just $125 a month.

At the same time, the maximum amount commuters can set aside to pay for parking increased to $240 from $230 a month.

The public transit credit was expanded in the 2009 economic stimulus legislation, but the increase expired at the end of 2011, says Robert Healy, vice president, government affairs for the American Public Transportation Association. The parking benefit rose because it's indexed to inflation.