Cars that run on fuel sources other than gasoline are trendy right now. You may see electric car charging stations in front of your neighborhood grocery store. The car down the street from you may smell suspiciously like French fries when it leaves the neighborhood every morning. Or maybe you’re thinking of taking a trip to California just to check out a hydrogen-powered car. These cars represent the next new and exciting options to come along for drivers, and consumers who choose them will find many benefits available, including tax credits and other perks.

Electric cars

If you’re considering switching to an electric vehicle, whether you’re looking at one with a hybrid engine or a car that is fully battery powered, you’re in luck. This category is not only the most common—at this point it seems that most major car manufacturers are working on or have released an electric option, so you are no longer limited to niche vehicles—but it also has a large number of incentives available.

Most obvious is that the owner of an electric car will save a great deal of money by not needing to buy gasoline (or, with a hybrid engine, needing to fill up the gas tank less often), but that’s not all. Right now, the federal government is offering wide-ranging tax breaks to those who purchase electric cars and plug-in hybrids, with the actual amounts varying by make, model, and year of the car.

Many states also offer incentives for those who purchase electric cars. For example, in Washington, if you purchase or lease an electric car before mid-2015, you will be exempt from state and motor vehicle sales/use tax. Other states have similar deals. At one point, the tax breaks for certain models were so plentiful that in some states you could essentially lease an electric car for free.

In addition, many states – with the numbers growing all the time – allow drivers of electric cars to use HOV lanes without requiring a minimum number of passengers. Charging stations are becoming more plentiful, and car manufacturers are introducing new electric models all the time, so this option appears to be a safe bet for now.

Hydrogen cars

Hydrogen-powered cars are currently only available for lease in California and are cost prohibitive for most people to own. However, many researchers believe they hold promise, and their price is slowly coming down to more affordable levels. They run cleanly and their emissions are steam rather than greenhouse gases, although there is some debate about the emissions created by the energy used to make the fuel cells in the first place.

For those who do lease one of these cars, just as with battery-powered cars, there are tax incentives to be had. For example, there are tax credit benefits for the purchase of fuel cells, and the IRS also offers an excise tax credit for hydrogen fuel. California also gives special incentives for zero-emission cars. While some of the credits that were previously offered have expired, if you leased a hydrogen car before 2013, you may still be eligible—check with a tax pro for more details.

Biodiesel cars

If you have a standard fossil-fuel-powered car, and you don’t want to purchase a new car, you could instead convert the one you have to run on biodiesel, which is typically made out of used vegetable oil. This isn’t necessarily an easy task, but it can be very rewarding in terms of long-term financial savings and environmental benefits. There are many websites available that can show you how to make this happen. Your car will smell like fried food, but you’ll also be running it on a waste product that you often can get free for the asking from local restaurants that would otherwise throw it away. Plus, just as with other cars that use alternative fuels, driving a biodiesel car may qualify you for certain state and federal tax credits and other tax breaks.

If you’re not ready to take the plunge with a car that is powered by electricity or biodiesel, remember that nearly every time you fill up your gasoline-powered car, you’re already using an alternative fuel source. Most of the gas in the United States is now blended with corn-based ethanol, and scientists are working on other biofuel sources, such as algae and switchgrass, to create fuel that traditional cars can accept as well. However, by switching to a car that runs on an alternative fuel source, you can enjoy tax benefits and other incentives while helping the planet—and your wallet.

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