Last night I watched the DVD version of U-571, a sea adventure in the spirit of the classic World War II films of the 1940´s. Most of the action took place in or around realistic models of WWI and WWII vintage submarines. Despite historical inaccuracies (for example, Americans were shown taking an Enigma encoding machine from a German submarine, when the actual feat was carried out by British sailors and officers), the film was evocative enough of the real world to stick with me after it was over. Submarines were still on my mind this morning. I wondered when they were first used, so I did some searching on the Web. Although the idea of a submersible vessel has probably been on the wish-list of every navy of all times, the first successful delivery of a torpedo was apparently accomplished by the Confederate ship Hunley in 1864 off the coast of South Carolina.
Steam, gasoline, and diesel engines require oxygen to work. Human muscles do too, of course, but on a smaller scale. The Hunley was powered by eight men turning a crank. Submarines such as the ones portrayed in U-571 use electric motors when submerged and diesel engines when traveling on the surface. Part of what makes submarine war movies so exciting is that the people inside them are under tremendous time pressure — they can only stay underwater as long as their batteries hold out. Then they have to surface and use the diesel engines to re-charge, and it’s bad news if there are enemy ships or aircraft close by.
In 2006 batteries are still the weakest link in any electrically powered vehicle. They don´t hold a charge very long, and it takes a relatively long time to re-charge them. Therefore, in cases where it´s possible to use internal combustion engines, such as to power cars and trucks, electric motors have not been widely used.
The recently introduced hybrid cars overcome some of the limitations of the electric motor by using it to assist a gasoline engine. Some hybrids are designed to minimize fuel consumption (for example, the Honda Insight); others minimize emissions (for example, the Toyota Prius). (See for a description of how various hybrid cars work: Hybrid Cars)
The reason I´m writing about hybrid vehicles in a tax blog is that the Energy Policy Act of 2005 created a tax credit for purchasers of certified hybrid vehicles. The deduction that was allowed under the prior law is history. For a list of the vehicles that have been certified for the credit, and the amount of credit for each, see the IRS web site: IRS Newsrooml
Of course the tax law could never be as simple as checking a list, could it? The following limitations apply:
1. The vehicle must be placed in service after 12/31/2005 (to "place in service" is tax jargon meaning to begin to use the vehicle);
2. The vehicle must be used predominately within the United States;
3. You have to be the original owner of the car — that is, it can´t be a used car or a leased car, you have to buy it new;
4. The full credit is only available until the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter. Say what? The IRS web site provides the following example:
F Company is a manufacturer of hybrid motor vehicles, but not advanced lean burn technology motor vehicles. F Company sells its 60,000th hybrid car on March 31, 2006.
Â· Ms. Smith buys an F Company hybrid car on June 30, 2006, and claims the full credit.
Â· Ms. Maple buys an F Company hybrid car on Dec. 31, 2006, and claims 50 percent of the credit.
Â· Mr. Grey buys an F Company hybrid car on June 30, 2007, and claims 25 percent of the credit.
Â· Mr. Green buys an F Company hybrid car on July 1, 2007, and is unable to claim the credit, because the credit has phased out for F Company vehicles.
For some taxpayers, the credit is not as good as it first appears. It won´t reduce alternative minimum tax; it must be taken last after other credits such as the child care tax credit, and if your tax liability is zero by the time you get to the hybrid vehicle credit, the credit is worthless to you; and it can´t be carried over to future years.
Thinking back to that early submarine powered by eight men turning a crank — something I´d love to see would be a hybrid car incorporating pedal power. Simultaneously minimize emissions, maximize fuel efficiency, and fight obesity. Now there would be something worthy of a tax credit!