Electric vehicle tax credits can be highly valuable, but there are a lot of confusing rules regarding how they work. This guide will show you what you need to know about tax credits on plug-in electric vehicles. It will also answer some of the most common questions people have.
What Are the Electric Vehicle Tax Credits?
The Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), which is now known as the Clean Vehicle Credit, was amended by the Inflation Reduction Act of 2022 (Public Law 117-169), and a new requirement for final assembly in North America was added as a result of this legislation.
This requirement went into effect on August 17, 2022.
Section 30D of the Internal Revenue Code offers a credit for Qualified Plug-in Electric Drive Motor Vehicles, such as passenger cars and light trucks.
The credit for automobiles obtained after 12/31/2009 is $2,500 + $417 plus an extra $417 for each kilowatt hour of battery capacity above 5 kilowatt hours. The maximum amount of credit available for a vehicle is $7,500.
When at least 200,000 eligible vehicles created by a manufacturer and sold for use in the United States, the credit begins to phase out for that company’s vehicles.
How Much are Electric Vehicle Tax Credits?
All-electric and plug-in hybrid vehicles bought new in or after 2010 may be eligible for a $7,500 federal income tax credit.
The amount of the credit will vary depending on the capacity of the battery used to power the car. State and municipal tax breaks may also be available.
If you purchased a Nissan Leaf and your tax bill was $5,000, that’s all you get at the end of the year. You’re not going to get the other $2,500 as part of a refund. Furthermore, if part of the credit is unused, you can’t carry it over to the following year.
This credit only applies to purchases of a vehicle. If you happen to lease the vehicle, the manufacturer gets to take advantage of the tax credit instead. Some manufacturers will lower your monthly payment to take the credit into account, but they’re not obligated to do this.
The size of the battery in the car is one of the most essential criteria in determining how beneficial it is to claim the electric car credit. For example, the Toyota Prius Prime has a smaller battery, and it’s a hybrid, so you can only get a maximum of $4,502 from purchasing this vehicle.
How Much is the Electric Vehicle Tax Credit for a 2021 Tesla?
The Clean Energy Act for America would benefit Tesla by allowing most Tesla vehicles to qualify for an $8,000 (House version) or $10,000 (Senate version) refundable EV, electric vehicle tax credit while discouraging Chinese EVs from entering the US market.
Tesla, on the other hand, does not utilize unionized workers. Therefore it would be ineligible for the extra $2,500 (Senate version) or $4,500 (House version) credit that corporations like Ford and GM would get.
To help you understand how much each vehicle is worth, look at the chart below:
What Vehicles Currently Qualify for the Federal Credit?
Here are some popular models:
|Electric Vehicles||Federal Tax Credit|
|Chevrolet Bolt||$7,500 (1/1/19-3/31/19) ($3,750, 4/1/19-9/30/19. $1,875, 10/1/19-3/31/20)|
|Ford Focus Electric||$7,500|
|Hyundai Ioniq Electric||$7,500|
|Kia Soul EV||$7,500|
|Mercedes-Benz B-Class EV||$7,500|
|Tesla Model 3||$3,750 (1/1/19-6/30/19) ($1,875, 7/1/19-12/31/19)|
|Tesla Model S||$3,750 (1/1/19-6/30/19) ($1,875, 7/1/19-12/31/19)|
|Tesla Model X||$3,750 (1/1/19-6/30/19) ($1,875, 7/1/19-12/31/19)|
|Plug-In Hybrids||Federal Tax Credit|
|Audi A3 e-tron||$4,205|
|BMW i3 with range extender||$7,500|
|Chevrolet Volt||$7,500 (1/1/19-3/31/19) ($3,750, 4/1/19-9/30/19. $1,875, 10/1/19-3/31/20)|
|Ford C-Max Energi||$4,007|
|Ford Fusion Energi||$4,007|
|Honda Clarity Plug-In Hybrid||$7,500|
|Hyundai Ioniq Plug-In Hybrid||$4,543|
|Hyundai Sonata Plug-In Hybrid||$4,919|
|Kia Optima Plug-In||$4,919|
|Mini Countryman S E All4||$4,001|
|Toyota Prius Prime||$4,502|
|Volvo XC90 T8||$4,585|
The US Department of Energy maintains the entire list. You can sort by vehicle type or manufacturer.
Are There Any Terms and Conditions Associated With the EV Tax Credit?
There are additional rules involving EV tax credits. As well as the rule on how much you can get back from the Federal government, there are a few other things you must take into account:
- The tax credit is awarded to the registered owner of the vehicle, which is why if you’re leasing, you can’t claim the credit. Instead, try to find a manufacturer that will factor the credit into your monthly repayments.
- You can’t claim the credit if you’re buying an electric vehicle to resell it. However, this is almost impossible to prove, so plenty of people have claimed the credit anyway.
- The vehicle’s primary purpose must be for driving within the US. In other words, if you live in Mexico, you can’t just buy in the US and immediately take it to Mexico, at least not for the first year.
- Only cars built by qualified manufacturers are eligible for full credit.
- Battery electric vehicles and plug-in hybrids must have battery packs that possess at least 4 kWh of energy storage. They must also be capable of being recharged from an external power outlet.
- Manufacturers don’t have to certify their vehicles to the IRS that they meet the credit requirements. You can generally rely on manufacturers and their word as to whether a car is eligible. This also applies to electric motorcycles, three-wheel EVs, and other similar vehicles.
- Please take note that the IRS is well within its rights to reject a request for a tax credit.
- The car must have a qualified plug-in electric drive motor.
Do the Electric Car Tax Credits Expire?
The government has already begun to phase out electric vehicle tax credits. This is because sales volume is increasing, and they were introduced to encourage this industry.
There’s no set date for when electric vehicle tax credits are due to expire. It depends on the manufacturer. This arises when a manufacturer sells 200,000 qualifying vehicles. Tesla was the first manufacturer to reach this limit back in July 2018.
That’s why from January 1st to June 30th, 2019, the tax credit has decreased by $3,750. From July 1st until the end of the year, the credit is only worth $1,875. From 2020, you won’t be able to claim tax credits on a Tesla.
General Motors became the second manufacturer to hit this milestone in the final financial quarter of 2018. From April 2019, qualifying vehicles are only worth $3,750 in tax credits. Then, from October 2019 to March 2020, the credit drops to $1,875. After that, the credit phases out completely.
Nissan is expected to be the third manufacturer to hit the limit, but as of this writing, it’s still 70,000 sales away from this. However, analysts expect sales to pick up soon.
Can You Refuse to Take Electric Vehicle Tax Credits?
This is a common question from people who want to pass the credit to someone else, such as if the car is used as a loan or test car.
The answer is you can’t pass electric vehicle tax credits to others. Even if the original owner didn’t claim the credit, the new owner can’t claim the credit.
This is especially important to know about if you plan on buying a used car. You may find that purchasing a new model is worth the additional cost because you’ll get more back from the tax credit.
Are There Any Expired Programs?
Hybrids and clean-diesel cars used to qualify for tax credits, but these were discontinued in December 2010. In addition, models like the Toyota Prius and the Hyundai Sonata Hybrid don’t have batteries that can be charged from an external source, so they’re no longer relevant for electric vehicle incentives.
Are There Any State Programs I Can Take Advantage Of?
Do remember that the Federal government is not the only body you can claim a tax credit from. There are dozens of programs run by states and even regions that can offer tax credits on electric cars and other vehicles that take advantage of alternative fuels.
Many states have multiple programs, but the problem is most of them apply only to businesses. A lot of credits are in the form of exemptions, such as inspections and fees. Some programs even offer access to carpool lanes and regional free or reduced parking.
Retail buyers do have some options, though. They can claim rebates, tax credits, and reductions on vehicle taxes by purchasing a qualifying vehicle.
California is one such state that does this. If you buy or lease a new car, like the Chevrolet Bolt or the Jaguar I-Pace, you can receive a rebate of $2,500. These programs are in addition to the Federal tax credit. So, Californians can shave off up to $10,000 off the cost of a new model.
On the other hand, Plug-in hybrids work a little differently because their batteries are smaller, and they burn some form of petroleum-based fuel most of the time. Cars like the Chevrolet Volt are only eligible for $1,500 rebates in California.
It would help if you looked up Plugin America for more information. They provide a map of the country and all the different plug-in car rebates, credits, and deductions. The Department of Energy also offers a similar resource.
Before you shop, look up what you may be entitled to. Unfortunately, many states have either ended or will soon end their programs. For example, Georgia ended its rebate program back in July 2015.
What about Fuel Cell Cars?
If you purchased a fuel cell car after January 1st, 2017, you’re no longer able to claim Federal tax credits on these cars. Those who bought before were able to get a Federal tax credit of $4,000, in addition to credits ranging from $1,000 to $4,000. After that, it largely depended on the fuel efficiency rating of the vehicle.
Some states still have these programs. For example, California continues to offer a $5,000 rebate on the Toyota Mirai.
How to Claim the Electric Car Tax Credit
Online tax software asks you simple questions to fill in the proper forms and helps you claim every electric car tax credit and deduction that you qualify for, and you will get the largest refund possible.
You never have to know the tax laws or rules during the filing process!