One of the most popular trends to hit the automotive industry over the last decade or so is the push to go electric. While some manufacturers like Honda and Toyota have been offering hybrid and fully gas cars for the last decade, this craze has really started to pick up. It seems like every year, a brand new manufacturer brings never seen before technology and electric cars to market. There are even some car companies that are swearing to only offer electric vehicles by 2035. Considering the popularity of these vehicles, and the fact they are great to drive, you may be thinking about purchasing one. If you are, you should be aware of electric car tax credits. This financial incentive could make buying a new electric car more affordable.
What Cars Qualify For Electric Car Tax Credits?
There are a ton of cars out there that are electrified, or fully electric. Unfortunately, not all of these vehicles qualify for the tax credit. When a manufacturer sells its 200,000th qualified vehicle, the tax credit winds down. Eventually, some electric cars will not qualify at all depending on how many vehicles have been sold. You should understand that this is not model specific, it is manufacturer specific.
There are still a ton of cars that are eligible for this tax credit. There are too many to list here, but some of the manufacturers that still qualify include Volkswagen, Volvo, Audi, BMW, Porsche, Ford, Jeep, Nissan, Honda, Hyundai, and even Jaguar.
If you are looking for more details regarding if a car you are looking at qualifies, this IRS website provides all pertinent information. You can see the qualifying vehicle, the possible credit amount, when any credits are available until, and if the credit amount has started to phase out based on the manufacturer.
You should also know that the tax credits are only eligible on new cars. So if you thinking about buying a used car, you will not get the tax credits. This also applies for leasing. If you lease a vehicle that is eligible for the tax credit you will not be able to get the tax credit. Only the owner of the vehicle (i.e. the leasing company) can claim the credit. However, leasing companies will tend to roll the credit into the deal and pass the savings along to the customer.
What is a Tax Credit?
Before we dive further into the details, you need to understand what a tax credit is and how they work. A tax credit is a dollar for dollar reduction of the income tax you owe.
For instance, if you owe $5,000 in federal income taxes, and have a $4,000 federal tax credit, your total tax liability drops.
What if you have more credits than you owe? Well, if your total tax is $2,500, and you have a $5,000 tax credit, you will get a refund of $2,500. Talk about free money!
How Much Is the Credit?
Now that you understand what a tax credit is, we can discuss the electric car tax credits.
Internal Revenue Code (IRC) Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles. This includes passenger vehicles and light trucks. The minimum credit is equal to $2,500 and can go as high as $7,500 per qualifying vehicle. Electric car tax credits are based on the battery’s kilowatt capacity per hour. So what it comes down to is if the car is more efficient, then the larger the credit will be.
Before making a purchase, definitely double check if that vehicle is still eligible. If you want a popular electric car, you may have to act fast before they sell 200,000 units. For some manufacturers like Tesla and GM, the phase out has already started. In some cases the manufacturer may not even be eligible anymore.
You’ll have to act fast though if you want the biggest bang for your buck. Credits phase out based on the number of vehicles sold and will be capped after the manufacturer sells 200,000 units. This means the credit will be less valuable for more popular cars and could be eliminated for tops brands like Tesla (if they ever get their production issues figured out).
Buying a car that is eligible for electric car tax credits is a great way to reduce the total ownership costs of a car.
In addition to a federal tax credit, your state may also offer some type of incentive to buy an electric car. If you live in a state that incentivizes the purchase of electric vehicles then you can save even more money. Checkout the Department of Energy’s website to see a full list of states that offer tax incentives for electric vehicles.
How Do I Get The Credit?
So, you’ve found the perfect electric car and have purchased it. Now, how do you actually claim the credit? Unlike other dealer credits, you will have to file additional paperwork with your normal federal tax return.
To claim the credit, you will need to file IRS Form 8939. You will then need to attach this to your federal tax return.
Overall, this should be a very easy process. Just be sure you know how much the car’s credit is. You don’t want any unexpected surprises when it comes time to calculate your total tax liability.
Electric Car Tax Credits – Summary
There are many benefits to electric cars. First, they can contribute less to total carbon footprint if you charge the vehicle with sustainable energy sources. At the end of the day, if you are charging an electric car with electricity generated from a coal power plant, are you really making a difference?
Not only can electric cars be thought of as a cleaner alternative to cars with an internal combustion engine, they can also be better to drive. With an electric car, you have less noise and vibration entering into the cabin because there is no actual engine. Plus, the power delivery is instantaneous. A regular gas powered engine is no match on a drag strip compared to a fully loaded electric car.
Another benefit to electric car ownership is that there are federal and even state electric car tax credits. These credits can reduce your total income tax liability and save you money at the end of the day.