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MERCURY MARINER, FORD ESCAPE HYBRIDS CERTIFIED FOR CLEAN FUEL DEDUCTION, CREDIT

November 09, 2005

The IRS has certified two new vehicles as qualifying for the $2,000 clean fuel deduction for 2005. The Mercury Mariner and Ford Escape now qualify for the clean fuel vehicle deduction. The deduction expires at the end of this year, to be replaced by a tax credit in 2006.

DEDUCTION OR CREDIT?

If you take possession of the vehicle before year-end, you get the deduction. If you wait until next year, you get the credit. Which should you do?

The answer depends on what your alternative minimum tax (AMT) situation is. You can take the deduction in computing AMT and get a tax benefit right away. The credit is not allowed for AMT, and you won't be able to use it until the day in the misty future when you no longer are paying AMT. But if you can use the credit, it's better than the deduction.

How do you know whether you will be in AMT? You have to run the numbers. As a shortcut, if you are a two-earner professional couple in a high tax state, like Iowa, you are a likely AMT candidate as far as the eye can see - especially if you have kids.

Link: Complete list of qualifying vehicles

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