The Internal Revenue Service has given the green light to Toyota owners to take a $2,000 above-the-line tax deduction as a prize for purchasing a 2001, 2002, or 2003 Toyota Prius.
The Prius is a gas-powered vehicle with an electric motor - a hybrid car that is the first to qualify for a new tax deduction for fuel efficient, lower emission cars.
The deduction is a one-time deduction, treated as an adjustment to income so those taxpayers driven to purchase the Prius do not have to itemize deductions to take advantage of the $2,000.
The amount of the deduction is determined by the manufacturer who received approval for the amount from the IRS after documenting the extra cost associated with outfitting the car with the electric motor and related equipment. The initial IRS ruling was set out in Revenue Procedure 2002-42, which states that the maximum amount of deduction allowed is $2,000 for vehicles placed in service through 12/31/03. After that date, the deduction is phased out over three years so that vehicles placed in service in 2007 will no longer qualify for any deduction.
The Prius retails for approximately $20,000. The actual tax benefit of the $2,000 deduction could be $300 or less for taxpayers in the lowest tax brackets, or as high as $770-$780 for taxpayers in the highest brackets. Taxpayers who purchased a Prius in 2001 and who already filed their 2001 tax return are entitled to amend the 2001 tax return to take advantage of the credit.