A good number of states as well as the federal government offer many financial incentives that include tax credit and help to lower the upfront expenses of electric cars or EVs or as many call them: plug-in electric vehicles. Before we go deep into the main topic let’s get a basic understanding first about which kind of electric vehicles can get the EV tax credit. It’s only natural for some of you to get confused about the type of EVs or electric vehicles that are qualified for EV tax credits and the amount of credit that one can get. So, here’s everything you should know about the electric vehicle tax credit and how to get them!
What is a tax credit?
The tax credit contributes to reducing the tax amount you owe. Further, it also reduces the tax liability dollar for dollar. The non-refundable tax credit expires the year they are used or not used. On the other hand, the refundable tax credit increases the tax refund if you do not use it. A tax deduction and tax credit both offer tax breaks and the difference is the deduction that can reduce your taxable income’s amount. So, now let us understand what electric vehicle tax credit is.
Electric vehicle tax credit
The government wanted to encourage the electric vehicle industry and presented the electric vehicle tax credit in the year 2008. The tax credit provides a financial incentive that can go as much as $7500 in the non-refundable tax credit when a taxpayer purchases a new electric vehicle. There are a number of states that offer more incentives for purchasing electric vehicles. They sometimes include carpool lanes access along with tax credits and more. You can find out all about the incentives and what you are eligible for in the website by “The Department of Energy.” However, you need to remember that the electric vehicle tax credits come with few extra stipulations as well. Given below are the stipulations:
• You cannot get the tax credit if you purchase a new car to resale
• You cannot pass on the tax credit
• If you are purchasing a used vehicle then you cannot get the tax credit.
• You will have to use the car in the United States mainly.
Let’s discuss more about these points.
How much credit can you get?
You will often notice people saying that the credit for EVs is worth up to a certain amount; however, in reality, the federal incentive is generally a flat credit of $7500. But you have to remember that the credit of $7500 is for those who pay a tax bill of $7500 or more at the year-end. For instance, if you purchase a vehicle and your income tax owed is $5000 for that year, your tax credit will be $5000! You cannot use the unused credit portion against the taxes of next year. On the other hand, if you lease the vehicle, the manufacturer who is offering the lease, will get the tax credit; not you! Further, the credits will also depend on the battery size of the electronic vehicle. There are models that can get a maximum credit below $7500. For example, Audi A3 e-Tron, a plug-in hybrid, will only qualify for a federal tax credit of $4,502.
Can the tax credit of an electric vehicle run out?
The answer is, unfortunately, yes! The EV tax credits are now being phased out by the government as the volume of sales is increasing; it can be theorized that the rising initial cost of getting new technologies added to vehicles will decrease with the improved scale of the economy with improved sales. That is supposed to be helping the requirement for subsidies. The date of expiration is different for every manufacturer; it comes only after a manufacturer sells 200,000 vehicles. To summarize it all, the tax credit of EVs can run out and you need to be mindful of that.
Can the tax credits of the electric vehicles pass on?
It is one of the most common questions that people ask: Who can claim the tax credit for the low-mileage vehicles, which dealers sell after using them for demonstrations or as a loan car? The answer to this question is very simple: The Electric vehicle tax credits can’t be passed on! The original registered owner of the eligible electric vehicle can only claim the tax credit. If the original registered owner of an eligible electric vehicle chooses not to apply for the tax credit, it can’t be passed on to the subsequent buyer. This is useful information as it can be one of the bargaining points when you negotiate for a used car. You may realize that a brand new model can be a better deal than going for a used car if the tax credit for the brand new model is decreased by $7,500!
Is there a tax credit for electric cars in 2019?
When you buy a brand new electric vehicle, you become eligible for a tax credit worth up to $7500. However, there are criteria that you have to meet first, which are as follows:
- Your electric vehicle must meet emission standards.
- Your electric vehicle must have a weight rating of around 14,000 pounds.
- The electric vehicle should use an external source for a plug-in to recharge.
- Your electric vehicle must have a battery of minimum 4 kWh (kilowatt-hours) of capacity
- The electric vehicle should use traction batteries
- You should purchase the electric vehicle after 31st December 2009
It’s a fact that on an average, the cost of electric vehicles, including all-electric vehicle or plug-in hybrid vehicles, are a bit more than the conventional gas-powered vehicles. On the other hand, there are many federal and state electric vehicle incentives and tax credits, which can significantly lower the electric vehicle’s upfront expense so the electric vehicle owners can get benefits of reduced emissions and fuel savings.
The federal tax credit for electric vehicles applies to both plug-in hybrid cars and all-electric vehicles. Further, the amount that you can claim will vary based on the car model. Therefore, it is always a wise idea to check in the federal electric vehicle tax credits’ form how much your new electric vehicle can get. Just for your information, Tesla vehicles are not eligible for full incentives. Only the vehicles that were delivered by 31st December 2018 received the incentive in full. Cars that will be delivered before 30th June 2019 will enjoy a credit of $3,750. The vehicles that will be delivered between the 1st of July, 2019 and December of 2019 will get a credit of $1,875; beyond that timeline, purchasers will get no credit.
Is there a tax credit for electric cars in 2020?
Yes, depending on the manufacturer of the car it might still be eligible for a tax credit even in 2020. The tax credit is set to phase out from $7500 over a year once the manufacturer has sold 200 000 cars. For this reason, there will be no tax credit for Tesla cars in 2020 but cars produced by other manufacturers such as GM will still be eligible for a tax credit in Q1 of 2020.
Are federal credits the only tax credits you can get?
The place you live can be a major factor. There are states that are more generous comparatively and if you are fortunate enough to live in one of those states you can take advantage of local incentives while purchasing a brand new fully electric vehicle or any other plug-in car. For example, Colorado is a state that gives some extra benefits. Colorado offers a credit of around $5000, which you can use in conjunction with federal tax credit and you can save as much as $12,500 when you purchase an electric car.
However, in a few cases, you can get other incentives such as an instant car rebate. You may not have to wait till the next year for tax filing, rather you will instantly get a reduction in the electric vehicle’s price because the state government offers the payment to the dealer directly. Further, along with tax credits, some municipalities and states offer carpool lanes access, reduction in an excise tax or sales, and reduced or even free parking. There are states that offer rebates or credits to those who install EV charging stations at their business place or homes.
Therefore, before you purchase a plug-in or battery-electric vehicle, make sure you check with the local utility. You may get time-of-use rates, discounts, or even credits, which can significantly lower the cost of energy for you!
So, now that you have a fair idea of electric vehicles and the tax credits, it’s the time you know how to get the EV tax credit. The process is simple and now that you know the benefits vary from states to states, you should always try to get the most out of it.
How do I claim an electric vehicle tax credit?
You will be able to claim the EV tax credit by using the IRS Form 8936 and if you are buying it for personal use, then you can report the tax credit on the 1040 when you will be filling the federal taxes. As mentioned before, the state you live in may offer tax credits and incentives, therefore, make sure you consult a tax pro before you start the filings!
Wrapping it up
You can always get the list of eligible electric vehicles on the IRS website and that will help you choose better and smart. Electric vehicles are indeed the future and when you are already thinking of getting one, it is only smart to know everything that you should know. We hope that this article will help you understand electric vehicles better and you would have a clear idea about the tax credits for them. So, we hope that you make the right decision and save some money in the process!