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Tax Incentives: Frequently Asked Questions

What's the difference between a deduction and a credit?

A tax deduction reduces the amount of income for which you are taxed. For example, if your taxable income were $50,000, a $2,000 deduction would reduce it to $48,000. So, you would pay taxes on an income of $48,000 instead of $50,000. This means your actual savings would be a fraction of the $2,000 deduction.

A tax credit reduces the total amount of income tax you owe. So, if you owed $10,000 in federal income tax, a $2,000 credit would reduce the amount you owed to $8,000. With a credit, your actual savings would be $2,000.

Where can I find information on State incentives?

The U.S. Department of Energy's (DOE's) Alternative Fuels and Advanced Vehicles Data Center (AFDC) maintains a list of State & Federal Incentives & Laws for HEVs and alternative fuel vehicles.


The information on this page should not be viewed as an official or legally binding document. Other requirements or exceptions may apply. For more detailed information, please consult an IRS tax representative and/or official IRS publications.