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  • Writer's pictureJeff Guymon

Electric Car Tax Credit

Updated: Aug 23, 2020

Buying an electric vehicle can be expensive, however, you can lower some of the initial high registration costs by applying for the Electric Car Tax credit. The Electric Car Tax Credit Program is the government’s way of monetarily thanking you for doing your part to save the environment one electric vehicle (EV) at a time. You may be wondering the following frequently asked questions:

  • What vehicles fall under this tax credit?

  • How much can you get back with the electric car tax credit?

  • What rules limit the federal tax credit?

  • How do you get the electric car tax credit?

  • How does the Tesla Car Tax Credit work?

  • Are there different state incentives or additional tax credits for electric vehicles?

This article will walk you through the answers to each question above and serve as your complete guide to the ins and outs of the Electric Car Tax Credit.

What vehicles fall under this tax credit?

The Electric Car Tax program grants EV and PHEV (plug-in hybrid electric vehicle) owners up to $7,500 in tax credit. Standard hybrids that do not have a plug are excluded from this tax break. Some vehicles qualify for different amounts of credit and this is because the government bases the amount off of the vehicle’s battery pack capacity (measured in kilowatt-hours). The U.S. Department of Energy controls the entire list of cars that qualify for the tax credit.

Your vehicle is eligible for the Electric Car Tax Credit if:

  • You bought your all-electric vehicle in 2010 or later

  • You’re the original owner

    • If the vehicle is leased, the leased vehicle credits go to the titleholder

  • You are one of the first 200,000 buyers of a qualified vehicle from each manufacturer

    • If you purchase an EV after the initial 200,000 vehicle sales, you are eligible for partial amounts of tax credit

  • Your plug-in electric vehicle must be able to recharge from an external charger and have a battery pack energy capacity of at least 4kWh

Electric Vehicles/Plug-in Hybrids that Qualify for the Electric Car Tax Credit

All vehicles outlined in red have been phased out of the program and are no longer eligible for the tax credit.

All vehicles outlined in red have been phased out of the program and are no longer eligible for the tax credit.

Electric Plug-in Hybrid:

How much can you get back with the Electric Car Tax credit?

The maximum income tax credit amount that you could receive is $7,500. This being said, you are not guaranteed this amount or even the amount that is specified for your vehicle.

As stated above, the standard credit that your vehicle qualifies for depends on the battery capacity. With this being said, a $100,000 vehicle and a $30,000 vehicle may qualify for the same amount. Refer to the chart above to find out how much tax credit your vehicle can qualify for.

Another reason you may not be eligible for the full $7,500 tax credit is because of the Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out. Per Notice 2009-89, as the sales volume of EVs and PHEVs increase, the government phases out the electric vehicle tax credits in order to eliminate the need for subsidies. Manufacturers who make vehicles eligible for the Electric Tax Credit are required to phase out after they reach 200,000 sales of their qualified specific electric/hybrid model(s). This means vehicles sold after the initial 200,000 will see a decrease in tax credit amount every 6 months until the tax credit amount is $0 and that vehicle make, model, and type is no longer eligible.

For example, General Motors became the second carmaker (after Tesla) to sell 200,000 EVs and PHEVs during the last quarter of 2018. Beginning in April 2019, the maximum tax credit dropped to $3,750 for its qualified vehicles. The credit dropped to $1,875 for the period from October 2019 through March 2020. After March 2020, no credit is available for a qualified vehicle from the manufacturer GM.

What rules limit the federal tax credit?

Once you have figured out how much your specific vehicle model is qualified for, you still may not get the entire amount.

Federal rules that limit the tax credit are:

  • You must have a federal tax liability in the year that you purchased your EV or PHEV. The electric car tax credit is a dollar-for-dollar reduction for your previous year’s taxes. Furthermore, you are only eligible to receive as much credit as you have in tax liabilities for the previous year.

    • For example, If you bought your fuel-efficient vehicle in 2020 and it qualifies for the full $7,500 credit but you owe the federal government $5,000 in federal taxes, you will only be able to claim $5,000 of the electric tax credit.

  • Only the original registered owner of a federal electric vehicle can claim the electric drive motor vehicle credit.

    • The EV tax credit cannot be passed on to the next owner of a vehicle, even if the first registered owner failed to apply for the credit.

  • The full $7,500 federal tax credit is only for the first 200,000 eligible cars from qualified manufacturers.

  • If the vehicle is leased, the EV tax credit goes to the manufacturer or leasing company on the vehicle’s title.

    • You may be able to get a lower monthly payment due to the fact that you will not receive the EV tax credit, but this is not required.

  • The Internal Revenue Service, or IRS, reserves the right to deny any tax credit claim.

How do you get the Electric Car Tax credit?

Once you purchase your new vehicle from the dealership, you must file a Form 8936 with the rest of your tax returns in the year that you purchased the vehicle. Your tax professional will guide you through how to properly file your EV tax credit claim. The amount of tax credit that you qualify for will be added to your taxes owed for the year you file.

If for some reason, you do not file a claim during the year that you purchased your qualified plug-in electric drive motor vehicle, you may amend your tax return. Amending your tax return grants you up to 3 years to file a claim.

Are there different state incentives or additional tax credits for electric vehicles?

Even though the EV federal tax credit steals the spotlight, there are many state-specific and local government incentives to buy an electric vehicle. Incentives can come in the form of grants, tax incentives, rebates, loans/leases, exemptions, and many more! Colorado and California local governments provide the most incentives to be fuel-efficient.

Below are some tools to help you learn more about your specific state’s incentives:

How does the Tesla Car Tax Credit work?

Since 2010, anyone who has purchased a new Tesla vehicle is qualified for up to $7,500 federal tax credit in the year they bought their Tesla. The amount is also dependent on your previous year’s tax liability amount. This is the amount you owe the government from last year. Tesla, as an automaker, hit 200,000 electric vehicles sold in July 2018, so the United States government began to phase out the Tesla Car Tax Credit.

As of July 2020, Tesla Vehicles have been completely phased out and are no longer eligible for the tax credit. If you are no longer able to take advantage of this tax credit but have purchased a Tesla in 2020, you can still apply for solar, local, and utility incentives. Tesla’s article, “Electric Vehicle and Solar Incentives” provides a list of all incentives for battery electric vehicles such as Tesla models S, 3, and X by state.

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