Posted by Thomas G Kinsella, ATP

Electric Car Tax Credits: How do they work?

Electric Car Tax Credits: How do they work?

Even though an electric vehicle might be a costly investment, it might qualify one for some financial incentives, which could mean some cash back to the owner. 

Everyone who qualifies for the Qualified Plug-in Electric Drive Motor Vehicle Credit can earn as much as $7,500 back when filing their federal tax return. Also, one might be eligible for additional state, city, and incentives like discounts or rebates. 

This article discusses the federal electric vehicle tax, the car that qualifies, and other incentives one might get. 


Understanding electric car tax Credit 

To make people develop an interest in electric vehicles, federal income tax credit started in 2010 for qualified electric vehicles bought after the end of 2009. This tax credit is pegged at $7,500 per vehicle. 

The amount of tax credit one can get is hinged on various factors, but we will discuss two:

  1. Battery Capacity: the federal government has a guide with which taxpayers can know the tax credit related to a specific model and make.

  2. Tax Obligation: the credit cannot be refunded. With this, even if your federal tax liability drops, there will not be a tax refund. 

One should note that a tax credit is different from a rebate – meaning there will not be cashback or even discount when buying the car. On purchasing the electric vehicle, one must fill the IRS Form 8936 alongside the federal tax return before claiming the tax credit. 


Cars that qualify for the Federal Tax Credit 

For a car to qualify for this specified federal electric vehicle income tax credit, there are various factors one needs to consider. For instance, an all-electric vehicle or a plug-in hybrid vehicle powered by a battery with 5 kW hour at least will qualify. There are models. However, that might phase out as soon as the manufacturer meets the prescribed threshold. 

While all-electric vehicles are powered strictly by electricity, a plug-in hybrid requires a combination of fuel and electricity. Also, for a car to qualify, it must be:

  • Brand New: this tax credit only applies to the original owner of the vehicle. Even though a leasing vehicle qualifies, only the leasing company gets the tax credit.

  • Bought after the last day of 2009: the vehicle must have been purchased after the last day of 2009. Also, the year you claimed the credit is when you must start using the car. 


Phase-Out of This Tax Credit

Once the car manufacturer sells 200,000 vehicles that qualify, this tax credit starts phasing out at the beginning of the calendar year's second quarter.

An example is the Qualified Plug-in Electric Drive Motor Vehicle Credit of General Motors electric, which ended provided all purchases happened after March 31, 2021.

One needs to access the latest credit information of the federal government before buying an electric car. With this, you will know if the tax credit of the particular vehicle you have in mind has started phasing out and which of the credit is still available. 


Examples of vehicles that might Qualify for the Tax Credit 

Make sure to still check the Federal website for reliable information on credits available. However, we list some vehicles with a full tax credit with the credit amount of September 2020.

Vehicle

Credit Amount 

BMW i3s

$7500

Ford Fusion Energi (2013 to 2018)

$4,007

Honda Clarity

$7,500

Nissan Leaf

$7,500

Hyundai Kona

$7,500

Toyota Rav4 Prime

$7,500

 

Some Incentives or Electric Cars

Depending on your location (state or city), one might qualify for some additional electric car incentives. This will usually be available on vehicle registration fees and further information like vouchers, discounts, and other exemptions.


FOR MORE INFORMATION ON HOW THOMAS G KINSELLA, ATP. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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Thomas G Kinsella, ATP
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