Is a prius hybrid an energy-efficient vehicle that you can claim as deduction?

[HelenaC]

Federal Tax Credits for All-Electric and Plug-in Hybrid Vehicles: Federal Tax Credit Up To $7,500: All-electric and plug-in hybrid cars purchased in or after 2010 may be eligible for a federal income tax credit of up to $7,500. The credit amount will vary based on the capacity of the battery used to power the vehicle. State and/or local incentives may also apply. See https://www.fueleconomy.gov/feg/taxevb.shtml 

• 2012–15 Toyota Prius Plug-in Hybrid  $2,500
• 2017 Toyota Prius Prime Plug-in Hybrid $4,502
• This credit does not apply to pre-owned or used vehicles.

The Plug-in Electric Drive Motor Vehicle Credit is reported on Form 8936, the Plug-In Electric Drive Motor Vehicle Credit applies to certain manufactured electric or plug-in hybrid electric vehicles which draw electricity from a battery recharged from an external source of electricity. The credit ranges from $2,500 to $7,500 depending on battery capacity and weight.

TurboTax will ask about your electric vehicle and help you with this credit. 

To enter your Plug-in Electric Drive Motor Vehicle Credit:

• Log on to TurboTax and click on the orange button, Take Me To My Return.
• Click on the Federal Income tab (Personal Tab in the Self-employed version).
• Click on Deductions & Credits.
• On the Your 2016 Deductions & Credits screen, scroll down to Cars and Other Things You Own.
• Click Start/Edit/Update next to Energy-Efficient Vehicles.
• Continue with the onscreen interview until complete.

[Franciscog]

We purchased 2 hybrid vehicles in 2017- 2017 Toyota Prius IV and Toyota Rav4 XLE.. again, both hybrid.  We received the tax credit for both of them, however, earlier this year we received a letter from IRS stating that one of the vehicles did not qualify as THEY stated our tax preparer put "ELECTIC PLUG IN VEHICLE" ..which neither is. They requested purchase information and i sent the information regarding the Prius.  I just received a letter 525 stating i owe $8606 as the car did not qualify.  

Does it qualify? Can you use 2 hybrid vehicles for the deduction.  What do i need to do to "fight" this as i don't have $8K!! HELP !!

[DoninGA]

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@Franciscog wrote:

We purchased 2 hybrid vehicles in 2017- 2017 Toyota Prius IV and Toyota Rav4 XLE.. again, both hybrid.  We received the tax credit for both of them, however, earlier this year we received a letter from IRS stating that one of the vehicles did not qualify as THEY stated our tax preparer put "ELECTIC PLUG IN VEHICLE" ..which neither is. They requested purchase information and i sent the information regarding the Prius.  I just received a letter 525 stating i owe $8606 as the car did not qualify.  

Does it qualify? Can you use 2 hybrid vehicles for the deduction.  What do i need to do to "fight" this as i don't have $8K!! HELP !!

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The IRS is correct.  Neither of the Toyota's qualify for the Qualified Plug-in Electric Drive Motor Vehicle Credit 

Go to this website for qualified vehicles - https://www.fueleconomy.gov/feg/taxevb.shtml

If your 2017 tax return shows the credit on Form 8936 and on your personal tax return Form 1040 line 54 you will have to repay any credit which is not allowed.

Contact the IRS and speak to an agent so that you will know what your next steps should be in re-paying the credit.

You can set up a payment plan with the IRS so that you can pay over time.  Go to this IRS website for an online application - https://www.irs.gov/payments/online-payment-agreement-application

[Opus 17]

The energy efficient vehicle credit is a declining credit based on manufacturer’s sales.  As each new model reaches a specific sales target, the credit is then phased out. For example, the Chrysler Pacifica hybrid is still eligible for the full credit because Chrysler doesn’t sell very many of them.  Because of the popularity of the Prius, the credit on a regular hybrid Prius was phased out long ago.

[Opus 17]

Incidentally, the amount you have to repay likely includes interest and possibly a penalty. The interest and penalty amounts should be the responsibility of your tax preparer because they made the original mistake.