The advantages of owning an electric car have been in the news more and more over the last several years. They're good for the environment with reduced emissions compared to conventional internal combustion engines. They reduce our dependency on petroleum with its potential for price fluctuations and supply interruptions. Electric cars also cost about half as much to operate compared to gas-powered vehicles and are fun to drive, often with better responsiveness than conventional automobiles. As if all of those weren't enough reasons to make your next car a plug-in, the federal government's electric vehicle tax credit might get you off the fence.
The electric vehicle tax credit can be substantial at up to $7500. There are conditions to meet to reach the maximum credit and helping you understand those conditions is the purpose of this article.
What Is the Electric Vehicle Tax Credit?
The electric vehicle tax credit is an incentive the federal government offers to get you behind the wheel of an electric car. The Internal Revenue Service offers a tax credit of $2,500 to $7,500 per new electric car purchased. The vehicle must be for use in the United States, and there are conditions on the vehicle's battery capacity and the buyer's tax situation that must be met to receive the full credit. The electric vehicle tax credit doesn't last indefinitely, either, as we'll discuss below.
How Does It Work
The tax credit is available for vehicles that can be charged from an external source and have a battery capacity of 4 kilowatt-hours or greater. To make it simple to determine if a car qualifies, the government has provided a list of car models that qualify.
Some Models that Qualify for the Credit
- BMW i3
- Chevrolet Bolt
- Fiat 500e
- Ford Focus Electric
- Ford Fusion Energi
- Kia Soul EV
- Nissan Leaf
- Smart Fortwo electric vehicle
- Tesla Model 3, Model S and Model X
- Volkswagen e-Golf
For the full list of government approved cars qualifying for the electric vehicle tax credit, you can search online quite easily.
Besides choosing a qualifying vehicle, you must have a federal tax liability that meets or exceeds the amount of the tax credit being offered. If the electric car you bought has a $7,500 tax credit available, and you only owe Uncle Sam $2,000 when you file your taxes, you can only take a $2,000 electric vehicle tax credit. You cannot carry over any excess to the next tax year, and you can only apply for the credit the year you purchased the vehicle.
As mentioned, this offer doesn't last forever. The electric vehicle tax credit will be phased out on an individual manufacturer basis. When a manufacturer sells 200,000 qualifying electric vehicles, the phase-out process begins. Tesla recently reached that figure, so their qualifying models' maximum credit will be reduced until it is finally phased out. Tesla vehicles delivered during the first half of 2019 are eligible for a federal credit of $3,750. During the second half of the year, the credit drops to $1,875. After 2019, the incentive for all Tesla models will no longer be available. GM is also close to triggering the phase-out.
Last, it's not just the federal government offering incentives. Some state and local governments offer various incentives for electric car purchases. Some of these come in the form of state and local income tax credits and some states pay instant rebates directly to the dealer or lower sales tax rates as a way of lowering the total purchase price. Even local utility providers offer credits or discounts you can apply for to lower your cost of energy. Check with your state and local authorities before you purchase the vehicle to find out if your area offers any incentives for electric car purchases.
7 Things to Know about Electric Car Rebates and Electric Vehicle Tax Credit
We've provided a good synopsis of the electric vehicle tax credit so far; what it is and how to use it. Here we'll add details we feel are important to know about the tax credit and also information about rebates that may be available when you purchase an electric vehicle.
1. Does the Federal Electric Vehicle Tax Credit Apply to a Leased Car?
No, but it might help to lower your payments or your down payment. If you're leasing an electric vehicle, the credit goes to the leasing company (usually owned by the manufacturer) that's offering the lease, since they own the car. Usually, the electric vehicle tax credit is factored into the cost of the lease, lowering the amount of the lease.
2. Can the Credit Be Applied towards a Vehicle That Has Been Converted to Electric Power?
No. electric vehicles must be built by qualified manufacturers to be eligible for the $7,500 credit. A new or used vehicle cannot be altered or changed to electric power by the owner or a third party to qualify for the tax credit.
3. Can the Tax Credit Be Passed from the Original Owner to a Subsequent Owner?
No. Only the original owner of an eligible vehicle can claim the federal tax credit. Even if the original owner does not apply for the credit, or if the car is sold during the same year in which it was purchased, the electric vehicle tax credit cannot be passed on to another buyer.
4. How Can I Claim the Federal Tax Credit When Filing My Return?
To claim the credit when filing your tax return, you will need to fill out IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. For vehicles acquired for personal use, report the credit on your Form 1040, U.S. Individual Income Tax Return. For vehicles purchased in 2010 or later, the credit can be applied toward the alternative minimum tax. Also, remember that the credit is only available for the year during which the vehicle was purchased.
5. What Incentives Are Available Other than the Federal Tax Credit?
There are many, depending on where you live. Some states, local municipalities, and local utility providers offer various incentives for purchasing an electric car. You must check with the appropriate governing bodies and providers to know what you can apply for. Here we'll provide you with a few examples so you'll know some different incentives available.
- If you live in San Diego County, California, learn how you can get approved for a rebate of up to $7,000 toward the purchase or lease of a new electric vehicle.
- In Colorado, a tax credit is available until January 1, 2022. The purchase or lease of a qualified electric vehicle may be eligible for up to a $5,000 tax credit at the dealership beginning January 1, 2017.
- In Florida, qualified alternative fuel vehicles may use designated HOV lanes regardless of the number of occupants in the vehicle. The vehicle must display a Florida Division of Motor Vehicles issued decal. Vehicles with decals may also use any HOV lane designated as an HOV toll lane without paying the toll.
- Georgia Power offers a plug-in electric vehicle time-of-use electricity rate for residential customers who own an electric or plug-in hybrid electric vehicle. The PEV rate is optional and does not require a separate meter. For more information, see the Georgia Power Electric Vehicles website.
- In Nevada, all local authorities with public metered parking areas within their jurisdiction must establish a program for alternative fuel vehicles to park in these areas without paying a fee.
- In New York, Vehicles powered only by electricity are exempt from state motor vehicle emissions inspections.
- In Pennsylvania, PECO provides rebates of $50 to residential customers who purchase a new, qualified electric vehicle.
- In Texas, Denton Municipal Electric (DME) offers a rebate of $300 for the purchase of an electric vehicle if applicants agree to charge during the off-peak hours of 10 pm to 7 am.
This is just a small sample of available rebates and incentive programs for electric car buyers across the country.
6. Are There Larger Tax Credits for More Expensive Cars?
No. The purchase price of the vehicle has no bearing on the tax credit for which you qualify. You’ll get the same credit whether you buy a $50,000 BMW i3 or a $30,000 Nissan Leaf. The amount is based on the electrical energy capacity of the vehicle and not how fuel efficient the car is.
7. Are There Any Other Ways to Save Money by Purchasing an Electric Vehicle?
Yes, besides the many ways we've shown you, many insurance carriers offer discounts of 5 percent or more for owners of electric and hybrid vehicles. Check with your insurance agent for details.
Though people have been slow to embrace electric vehicle ownership, the tide is turning. For many reasons, the day may come when electric vehicles replace their internal combustion powered predecessors. With all the incentives we've covered here, including the federal electric vehicle tax credit, now is a great time to consider changing to electric. Better for the environment, better for the economy and better for your wallet, electric vehicles just make sense.