Colorado income tax credits are available for the purchase of an alternative fuel vehicle, for a motor vehicle that is converted to use alternative fuel, or for the replacement of the power source with a power source that uses alternative fuel. To qualify, the vehicle must be titled and registered in Colorado. (C.R.S. 39-22-516)
Definition of Alternative Fuel
Alternative fuel means compressed natural gas, propane, methanol and ethanol, or any mixture thereof containing 85% or more of methanol or ethanol by volume with gasoline or other fuels, electricity, or any other fuels, which may include, but are not limited to, clean diesel and reformulated gasoline so long as these other fuels make comparable reductions in carbon monoxide emissions and brown cloud pollutants as determined by the air quality control commission.
Computations of Credit
The credit is only available in the year during which the vehicle was purchased or converted. The credit is a percentage of:
- the difference between the cost of the
vehicle and the cost of the same or most similar vehicle that uses a traditional fuel, or
- the cost incurred in converting the vehicle to an alternative fuel, or
- the difference between the cost of replacing the power source and the cost of the same or most similar power source that uses a traditional fuel.
Limitations to the Credit
A vehicle can qualify for this credit only one time. To claim the credit on the purchase of a used vehicle a taxpayer must:
- Provide a history of the vehicle indicating the prior owners and why they did not claim this credit.
- Provide the cost difference used in computing the credit and the basis on which it is computed.
- The cost difference will usually decrease ratably with the decrease in the value of the vehicle. For example, if the price paid for the used vehicle is 40% of the original MSRP, then the credit allowed will be 40% of the credit available for that vehicle when new.
- If a ten-year old vehicle had a new alternative fuel engine put in one year ago, then the vehicle must be compared to the most similar vehicle valued with a one-year old gas engine, not a ten-year old engine.
For tax years beginning prior to July 1, 2000, alternative fuel vehicles must have been used in connection with a business to qualify for this credit. For most individuals this means that a personal use vehicle must have been purchased on or after January 1, 2001 to qualify for this credit. For 1999 and 2000, if a vehicle was used part of the time for business use and part of the time for personal use, the credit must be prorated in proportion to the percentage of time during the tax year that the motor vehicle was used for business purposes.
To the extent the allowable credit exceeds the tax liability, the excess may be carried forward for up to five years.
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