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How AFV Tax Credits Work

Alternative Fuel Vehicle Tax Credits
The Honda Civic GX runs on natural gas as well as other alternative fuels.
The Honda Civic GX runs on natural gas as well as other alternative fuels.
Karen Bleier/AFP/Getty Images

If you want in on AFV tax breaks, you need to know what one is. An AFV is a vehicle that runs on fuel that isn't gasoline or diesel. The government recognizes four types of fuel for AFV tax credits:

You've probably noticed that there aren't a lot of cars at your local dealership that run on these fuels. In fact, you're not likely to find any. The Environmental Protection Agency (EPA) lists only one current car model that runs on any of these fuels: the Honda Civic GX [source: EPA].

Still, there are a lot of cars you can buy that will qualify you for tax credits. Though hybrid cars aren't technically AFVs, buying one can still qualify you for some tax breaks. Most major car manufactures offer at least one hybrid model. Though hybrids tend to cost more than gas-only cars, the savings on taxes (and gas) just might be worth it.

But why do hybrids and AFVs earn their drivers tax breaks? Like we mentioned before, the government wants to encourage people to buy them. Vehicles that run on alternative fuel sources cut down on pollution. They also cut down on the amount of oil the country uses, which helps keep prices low and means that we're better able to withstand a catastrophe that interrupts the supply of oil. (Remember when oil refineries were knocked offline after Hurricane Katrina?)

The U.S. government codified the incentives to buy cars that use less oil in the Energy Policy Act of 2005. It covers not only car purchases, but also encourages people to buy more energy-efficient appliances.

All right, enough with the background. On the next page, we'll get to the good stuff. How much money is the government is willing to take off your tax bill, and what you need to do to qualify?