Overview: These 3 tips can help you take advantage of the available Federal Tax Credit when purchasing an electric vehicle
On the market for a new vehicle? We’ve got some great news for you: If you’re considering an electric vehicle (EV), there are a few items you can consider to take advantage of the available Federal Tax Credit, “Qualified Plug-In Electric Drive Motor Vehicle Credit”. Let’s discuss these 3 federal items, plus a bonus item.
1. Credit Range
The first thing to note about this credit is that it ranges from $2,500-$7,500 depending on the kilowatt hour capacity of the vehicle. That means this credit also applies to plug-in hybrid vehicles because they store electrical power for propulsion. However, the credit for plug-in hybrids will be limited by their lack of capacity.
Now this is a non-refundable tax credit, so it can’t reduce your tax liability beyond zero. Any unused portion does roll forward, that part is not lost.
2. First Sale vs. Used Purchase
The second thing to note for this credit is that it only applies to the first sale of the car. You cannot use this credit on a used purchase. You must supply the VIN when applying for this credit.
3. Qualifying Vehicle Requirements
The third item is that not all EVs and plug-in hybrids currently on sale qualify for this credit.
This credit starts to phase out for a manufacturer when at least 200,000 qualifying vehicles have been sold by that manufacturer in the United States.
The easiest example of a car not qualifying for this credit is anything currently sold by Tesla. For a full list to reference, click the link listed below:
Final Words of Advice (Local Rebates, Contacting Experts, etc.):
The last thing to keep in mind while shopping for this new vehicle is to also check for local rebates and tax credits.
Various states have rebates and credits for alternative fuel vehicles so make sure to with your state revenue agency, transportation department, or clean vehicle program.
If you still have questions, however, it’s never a bad idea to contact your tax preparer prior to purchase of this new vehicle; they’ll give a final check on the potential tax savings, and other areas that you might have overlooked or might not be aware of.
Save driving and happy taxing!
Carlos Carazo, EA, CPA