By Sandra Block
USA Today

Toyota says you can drive its electric gasoline hybrid Prius from Detroit to Washington on a tank of gas. Tax breaks are available on Prius along with the Honda Insight and Honda Civic Hybrid. (Provided by Toyota)

You're an environmentally conscious driver, but you want a vehicle with some extra space. You never know when you'll need to transport a soccer team or small farm animal across town. Or perhaps you're a green consumer who secretly craves a sports car.

Automakers are eager to help. At this year's annual car show in Detroit, they unveiled snazzy new versions of energy-efficient vehicles. Their message: You don't have to sacrifice size and sex appeal to save on gas.

You can also save on taxes. But the federal tax break for so-called hybrid vehicles is getting smaller and will disappear after 2006 unless Congress extends it.

Hybrid vehicles combine an electric motor with a gasoline engine to deliver above-average gas mileage. Toyota and Honda sell hybrids now, and Ford and General Motors plan to introduce their own versions during the next three years.

Existing models get 47 to 60 mpg, depending on where you're driving. Toyota says you can drive its 2004 Prius from Detroit to Washington on a single tank of gas.

If you buy a hybrid vehicle this year, you can claim a $1,500 deduction on your 2004 tax return, down from $2,000 for hybrids bought in 2003. Next year, the deduction will drop to $1,000, and it's scheduled to fall to $500 in 2006.

Because the tax break is a deduction, its value varies, depending on your tax bracket. If you're in the 33 percent tax bracket, a $1,500 deduction will reduce your tax bill by $495. If you're in the 15 percent tax bracket, it's worth $225.

How it works:

• You don't have to itemize to claim the deduction. The hybrid tax break is what's known as an "above-the-line" deduction, which means you can take it even if you claim the standard deduction.

Record the deduction at the bottom of your Form 1040 as an adjustment to income, and write "clean fuel" on the dotted line.

You don't need to include a copy of your sales receipt with your tax returns, but you should file a copy with your tax records.

• The deduction is limited to vehicles that have been certified by the IRS. So far, the IRS has certified the Toyota Prius, the Honda Insight and Honda Civic Hybrid.

• The deduction is limited to new cars. You can't claim the deduction if you buy a used hybrid.

• It's a one-time deal. You can claim the deduction only for the first year you use the car. If you bought your hybrid last year, you should claim the deduction when you file your 2003 tax returns.

However, if you bought a hybrid a few years ago, you may still be able to claim the deduction. Once your car has been certified by the IRS, you can file an amended tax return for the year you bought the car.

• Some states also offer tax breaks. Colorado, for example, offers tax credits of about $3,000 on some models of hybrid cars. Check with your state tax department for more information.

• Drivers of all-electric cars get an even bigger break, although that incentive is also shrinking. Purchasers can claim a tax credit of up to $3,000 this year, down from $4,000 in 2003. You must file IRS Form 8834 to claim the credit. It's limited to vehicles powered primarily by rechargeable batteries, fuel cells or other portable sources of electricity, according to the IRS.

A tax credit is more valuable than a deduction because it provides a dollar-for-dollar reduction in your tax bill.

Advocates of clean-fuel vehicles are pushing for an even bigger tax break for people who buy hybrid cars.

Last year's $31 billion energy bill would have provided tax credits for fuel-efficient vehicles ranging from $250 to about $3,000, Kateri Callahan, president of the Alliance to Save Energy, says.

The most energy-efficient vehicles would be eligible for the highest credits.

The legislation passed the House but stalled in the Senate.

Some lawmakers say it will be difficult to revive the bill this year.

But Callahan, who is on a waiting list for a 2004 Prius, thinks that the tax credits could be salvaged.

Supporters are considering offering the clean-fuel credits as a separate bill or attaching them to another piece of legislation, Callahan says.

If oil prices continue to rise, lawmakers might feel pressured to promote the use of energy-efficient vehicles, she says.

She adds: "With it being an election year, anything can happen."