The 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.