Electric vehicles appear to be here to stay as they continue to grow in popularity with more and more drivers on the road today. And, as more auto manufacturers commit to producing electric vehicles, buyers are still looking for ways to offset the cost of their purchase. Thanks to Congress, one of the best ways to do so is by taking advantage of the Plug-In Electric Drive Motor Vehicle Credit, more simply known as the electric vehicle tax credit. If you're wondering what's the deal with this credit and if it’s something you should check into, here's all you need to know.
Electric Vehicle Credit Details
A short-term incentive, the electric vehicle credit is designed to offset the high price of purchasing an electric vehicle. The credit ranges from a low of $2,500 to a maximum of $7,500 for electric vehicles, so long as they are considered to be qualifying vehicles. However, the credit is non-refundable, and you'll need to have a federal tax liability during the year you purchase your EV to claim the tax credit. If claiming the credit, IRS Form 8936 will be needed.
Which Electric Vehicles Qualify for the Credit?
To be a qualifying vehicle, the EV you want to purchase must be an all-electric or hybrid car, it must have been purchased no earlier than 2010, you must be the person who is the primary driver, and the vehicle must be used in the United States. Since the IRS does provide a list of approved electric vehicles that meet the criteria for the tax credit, you should have few questions about whether your vehicle does in fact qualify. But should questions arise, never hesitate to speak to your CPA.
Does the Electric Vehicle Tax Credit Expire?
Unfortunately, the electric vehicle tax credit does expire. However, in doing so, it is a multi-tiered process. To begin with, no matter the model of electric vehicle, the credit will phase out once that vehicle's manufacturer sells at least 200,000 qualifying vehicles.
Once an EV automaker hits the 200,000 mark in vehicles sold, the credit is cut from $7,500 to $3,750 in the second calendar quarter until the end of the third calendar quarter following the 200,000 threshold. For the next two quarters, the credit is again cut in half, this time to $1,875. Finally, it stays there until the credit drops to $0 after one full year or four calendar quarters after the phase out originally started.
Do All Auto Manufacturers Still Qualify for the Credit?
Though most auto manufacturers have yet to reach the 200,000 mark on selling electric vehicles and thus still have vehicles that qualify for the tax credit, some do not. As of now, General Motors and Tesla are the only auto manufacturers that do not have vehicles qualifying for the tax credit, since each has sold in excess of 200,000 electric vehicles.
Who is Eligible for the Electric Vehicle Tax Credit?
To be eligible for the electric vehicle tax credit, you will of course need to confirm through the IRS list that your electric vehicle is considered to be a qualifying vehicle. Once this is done, you may want to consult with your CPA to ensure you will indeed have a federal tax liability in the year your vehicle was purchased.
Should your tax liability be lower than the available credit, the credit is capped at your tax liability. Thus, even if you have a $7,500 credit but only have a $3,000 federal tax liability, the most your credit can be is $3,000, since there is no carryover credit allowed.
What About State and Local Tax Credits and Rebates?
While the federal government has taken the lead in initiating tax credits and rebates to encourage consumers to purchase electric vehicles, state and local governments have also done their part to encourage the transition from gas-powered vehicles to electric vehicles.
But to find out if your locality and state offer any tax credits and rebates, you'll likely have to do quite a bit of research, since most of these offers are not greatly publicized. To find out what may be available to you, you can often visit your local town hall or look at your locality's website. Also, you can contact your electric company to find out if they are offering any credits or rebates.
One state that does offer an EV rebate is Pennsylvania, which has the Alternative Fuel Vehicle Rebate. But to take advantage of this rebate, you will need to submit an application within six months of purchasing your vehicle, meaning a vehicle you purchased several years ago may not qualify. Since rules will vary from state to state and one locality to another, it is best to talk to your CPA to discover if there is a tax credit or rebate out there with your name on it.
If you are considering purchasing an electric vehicle, combining local, state, and federal tax credits and rebates can have you potentially saving thousands of dollars on your purchase. Along with helping to protect the environment, you will likely also be viewed as a trendsetter in your town or city. With dozens of automakers still qualifying for the tax credit, the time is right for you to finally purchase an electric vehicle. But before you head to the dealership, stop by the office of your CPA to learn all you can about the electric vehicle credit.