What You Need to Know About Electric Vehicle Tax Credits

electric vehicle creditThe information contained in this post is not intended to replace the advice of a qualified tax professional.

Chances are, you’ve seen electric vehicles while commuting to work or running errands. While electric vehicles (EVs) started off as niche purchases in large metropolitan areas, they are now seen in communities of all sizes.

Electric vehicles have gone mainstream, and they bring with them environmental and financial benefits, including a tax break for eligible vehicles.

Which Vehicles Qualify?

Popular vehicles such as the Fiat 500e, Ford C-Max, Ford Focus Electric, Nissan Leaf, Chevy Volt, and Tesla models S and X all qualify for the electric vehicle tax credit.

The IRS maintains a comprehensive list of eligible vehicles.

How it works

In a nutshell, most electric vehicles are eligible for up to a $7500.00 tax credit. As with any regulation, there are some caveats:

  • You must be the initial buyer. If you purchase a used EV, the tax credit won’t apply.
  • If you decide to lease the vehicle, the leasing company reaps the benefit of the tax credit since they are the owner of record for the vehicle. Auto finance companies have taken this into consideration when drawing up lease agreements and determining lease payment programs.
  • The tax credit applies to vehicles purchased for personal use only and not for re-sale.
  • Battery packs must be rated for at least 4 kWh and must be charged from an external source, such as a home charging station or public charging station. The tax credit increases in proportion to battery size.
  • No refunds: If you purchase an EV and owe $5000 in taxes for example,  your EV tax credit will be equivalent to your tax bill, even if the EV qualified for the maximum tax credit of $7500.00.
  • The program will phase out for each automaker that sells 200,000 EVs.

State-based incentives and credit are available

You can locate state-specific programs through the Alternative Fuels Data Center website. Programs vary from state to state and are based on income and date of purchase.

The IRS codes pertaining to the federal EV tax credit are complex, but by understanding the essential tenets of the EV tax credit, you’ll be in a better position to determine if owning an EV would be worthwhile.

Take a few moments during your car-shopping trip to determine if the EV you have in mind is eligible for the federal EV tax credit. You could end up with significant tax savings as well as peace of mind for the environment.

Build Up Your Retirement Fund With The Saver’s Credit

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It might be hard to think about saving for retirement when present-day expenses threaten to derail your budget. If you are a low-to-moderate income person, you can still save for retirement without straining your existing resources. The Retirement Savings Contribution Credit AKA “The Savers Credit” is intended to help low-income taxpayers save for retirement.

What Is It?

The Saver’s Credit helps low-income taxpayers make contributions to retirement plans such as IRAs, 401(k)s or other employer-sponsored retirement plans. Although it was intended to be a temporary credit in 2002, it eventually was made permanent in 2006.This credit in unique n that it is one of the few credits offered to couples who file separate returns.

Eligibility

Eligibility for this credit is based on your tax filing status, Adjusted Gross Income (AGI) and your overall tax liability. If there is any excess credit left over, it can’t be issued to you as a refund. In addition to the income guidelines, you’ll need to be over 18, and not be considered a full-time student (if you attended college full-time for at least five months during the tax year, the IRS will consider you to be a full-time student). You also cannot be claimed as a dependent on anyone else’s tax return.

How It Works

You will need to complete and attach form 8880 to your tax return when you file your taxes. The maximum credit amount you can receive is $2000.00 (single or filing separately) or $4000.00 (filing jointly).

The Savers Credit can help take the pinch out of retirement savings for income-eligible people. If your employer offers a retirement plan, and if you meet the income guidelines established by the IRS, saving for retirement just got easier.

As with any tax matter, if you’re unsure as to whether or not you qualify for this credit, it’s always a good idea to check with a tax advisor or tax prep volunteer at tax time.