Like HowStuffWorks on Facebook!

How AFV Tax Credits Work


Image Gallery: Alternative Fuel Vehicles A natural-gas powered Ford C-Max is displayed at an auto show in Frankfurt. Some natural gas vehicles could qualify for AFV tax credits. See more pictures of alternative fuel vehicles.
John MacDougall/AFP/Getty Images

Pssst. . .the government is trying to control your behavior. Don't grab your tinfoil hat, it's less nefarious than it sounds. Governments often use taxes to change how their citizens behave and promote the greater good. For example, the U.S. government puts a high import tax on steel to encourage the use of U.S.-made steel. Cigarettes are taxed to discourage people from smoking. There's even talk about taxing junk food to nudge people into improving their eating habits and combating obesity.

Those kinds of taxes are used to discourage behavior, but the government can also use taxes to promote behavior. By offering breaks, like tax credits or tax deductions, the government gives people a financial incentive for certain choices. The most famous way the U.S. government does this is by offering tax credits for homeowners. Homeownership is good for the country because it builds wealth and keeps people invested in the places they live. The government encourages homeownership by letting homeowners deduct certain things to save on their taxes, like the interest they've paid on their mortgage.

The government also wouldn't mind if you helped cut pollution and eased the country's dependence on oil. To get you to do that, its offering tax credits on alternate fuel vehicles, or AFVs.

What's an AFV and what will the government do for you if you buy one? Read on to find out.


More to Explore