tax credit – The Plugin Report

If you have an electric car or are about to buy one, you’re probably aware that the US government has a tax incentive program in place for new electric vehicle owners. It can be confusing trying to figure out whether your car qualifies for the credit and whether you’ll get the full amount, especially if you’re heard talk of the EV credit phasing out. Below, I’ve compiled a list of every electric vehicle that currently qualifies for a tax credit, as well as how much the car might be eligible for. Remember, though, that there are a few other things that factor into whether you get the credit, like your taxable income, whether you own or are leasing the car, or if you’re the vehicle’s first owner. Unfortunately, I bought my Nissan Leaf second-hand so I do not get the tax credit. The $7,500 would have been a nice savings if I would have bought a new car. It is a nice chunk of change. Electric Vehicles That Qualify for a Tax Credit The vehicles below are organized by manufacturer and are all makes and models that are most common today. For hybrids and other manufacturers, take a look at the IRS’s complete list of eligible vehicles to see if your car is listed there. The IRS list is the most thorough, and they update it constantly as new cars become available on the market. BMW of North America YearModelMax Credit2014-2020BMW i3 Sedan$7,5002017BMW i3 (60Ah) Sedan$7,5002014-2020BMW i3 Sedan with Range Extender$7,5002018-2020BMW i3s Sedan$7,5002018-2020BMW i3s Sedan with Range Extender$7,5002014-2017BMW i8$3,7932019, 2020BMW i8 Coupe$5,6692019, 2020BMW i8 Roadster$5,6692020, 2021BMW X3 xDrive30e$5,8362016-2018BMW X5 xDrive40e$4,6682021BMW X5 xDrive45e$7,5002016-2018BMW 330e$4,0012021BMW 330e$5,8362021BMW 330e xDrive$5,8362018, 2019BMW 530e$4,6682020, 2021BMW 530e$5,8362018, 2019BMW 530e xDrive$4,6682020, 2021BMW 530e xDrive$5,8362017BMW 740e$4,6682018, 2019BMW 740e xDrive$4,6682020, 2021BMW 745e xDrive$5,836(Source: IRS) Ford Motor Company YearModelMax Credit2012-2018Focus Electric$7,5002013-2017C-MAX Energi$4,0072013-2018Fusion Energi$4,0072019, 2020Fusion Energi$4,6092020, 2021Lincoln Aviator Grand Touring$6,534(Source: IRS) Hyundai Motor America YearModelMax Credit2017-2020Ioniq Electric Battery Vehicle$7,5002019, 2020Kona Electric Vehicle$7,500(Source: IRS) Kia Motors America, Inc. YearModelMax Credit2015-2020Soul Electric$7,5002019, 2020NIRO EV$7,500(Source: IRS) Nissan North America YearModelMax Credit2011-2020Nissan LEAF$7,500(Source: IRS) Toyota Motor Sales, USA, Inc. YearModelMax Credit2012-2015Prius Plug-in Electric Drive Vehicle$2,5002012-2014RAV4 EV$7,500(Source: IRS) What Is the Electric Vehicle Credit? If you’re like many people, you’re happy to get any tax break you can get, even if you’re not sure of the reason behind it. However, it might be helpful to understand the logic with these credits when figuring out how much you’ll get. The Electric Vehicle Credit, also known as the Plug-In Electric Drive Vehicle Credit, or Internal Revenue Code Section 30D, is a “credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks,” according to the IRS. But, why is the US government giving out credits for electric vehicles? There are a couple of reasons. For one, electric vehicles don’t release emissions, making them better for the environment. They also make countries less reliant on imported oil, allowing them to use domestically produced electricity instead. Electric vehicles have other benefits, too: Lower fuel costsCheaper to maintainQuieterUpdates safety featuresPowerful acceleration Electric cars are good for the economy and good for the environment. Therefore, the US government wants to encourage people to buy electric vehicles (or EVs). However, since they use new technology, they’re more expensive than traditional automobiles. This is where the government incentive program comes in, meaning that the government gives people who buy electric vehicles an incentive in the form of a tax credit to offset some of that extra cost. So far, we’ve been talking about the tax credit offered by the federal government. There are additional incentives made available by state and local governments as well, which we’ll get into a little later. For now, let’s look at how to go about claiming the federal tax incentive. Photo by SHARE NOW on Unsplash How to File for the Federal EV Credit You’ll file for the credit when you file your taxes—if you use a tax preparer, make sure they know that you have an electric vehicle so they can fill out form 8936. If you use a tax program like TurboTax, there should be a section that asks if you’ve purchased an EV this year. Form 8936 is very simple to fill out—it just asks you to list your vehicle information and when you purchased it. If your vehicle is being phased out (which we’ll talk about below), make sure you understand where it is in the process so you can fill in the credit percentage accurately. If you need help filling out the form, the IRS site provides detailed instructions. The IRS page we linked to at the beginning of the article also includes information about vehicles being phased out. Right now, this only applies to General Motors and Tesla vehicles. The tax credit can be as much as $7,500 but don’t get too excited—depending on your situation, you might not be eligible for the full amount. The government factors in a few things when calculating the amount of credit owed. Let’s first look at eligibility requirements; then, we’ll take a deeper dive into exactly how the credit is calculated. Are You Eligible for the Credit? As with everything that has to do with getting money from the government, there are several caveats to getting the EV credit. It Must Be a Certified Electric Vehicle It kind of goes without saying, but for an electric vehicle to qualify for the EV credit, it must be a legit electric vehicle; this means that cars retrofitted to run on electricity aren’t eligible. If you’re not sure whether a car qualifies: Ask the dealer for paperwork saying that the car is a certified EVRefer to the above listCheck the IRS site directly To qualify for the credit, cars must also: Weigh less than 14,000 poundsUse a battery of at least 4 kWhBe externally chargeable You Must Be the First Owner This is where many people get into trouble (like me) —to qualify for the EV credit, you must be the first owner of the vehicle. If you lease your car, you’re not considered the first owner, and the leaser will be the one who gets the credit. Usually, the dealer will reflect this in the car's price, but it’s a good idea to check; this can also provide a bargaining point if you’re looking to get the price lowered before buying. If you buy an electric vehicle used, the initial owner is the only one who qualifies for the credit, and whether they claimed it or not, you’re not eligible for it. The EV Must Be Used Primarily in the US The vehicle must be used primarily in the United States to qualify for the credit. The IRS site doesn’t specify a certain number of days, but the legal definition of “primarily” is more than 50%, so that would mean using the car in the US at least 183 days out of the year. You Must Not Purchase It for Resale The vehicle must also be intended for your use, rather than for resale, to qualify. This is pretty hard to prove, though, since it’s always possible for someone to buy a car and need to sell it soon after for whatever reason. Even if it’s hard to prove, though, it’s best not to take a chance on it. Potentially saving a few grand in taxes isn’t worth all the hassle that will result in raising the IRS’s red flags. You Must Buy the EV in or After 2010 This qualifier is a pretty easy one since most people with electric vehicles purchased them more recently than in 2010. But it’s good to note that to get the credit, you have to have bought the car after December 31, 2009. Depending on the manufacturer, you’ll also need to purchase before a specific time to qualify, which we’ll get into detail about a little later in the Phase-Out section. How Are EV Credits Calculated? A common mistake that people make when looking forward to a tax credit is assuming that they’ll get the full possible amount, in this case, $7,500. While that’s the ideal outcome, unfortunately, it’s not always the reality. Two of the main things that will determine how much of a credit you get are: Taxable incomeBattery capacity It doesn’t seem like these things would matter, but they do. Here’s how. Taxable Income The simplest way to explain this point is that the credit will only ever be used to offset how much you pay in taxes—it will never add to a refund. In other words, if you qualify for the full $7,500 in credit but only owe $6,000 in taxes, the credit will wipe out that $6,000, but the remaining $1,500 disappears. You won’t get the difference in the refund from or use it for next year’s tax return. While it’s not the end of the world not to get the full use of the credit, it’s certainly something to consider when you decide on when to make the purchase, and whether it might make sense to wait until next year if you think you might owe more in taxes then, so you’ll be able to actually use more of the credit. If you’re unsure, talk to your financial advisor or tax preparer to see if they have any suggestions. Car Specs The IRS calculates how much credit you get by looking at the car’s battery capacity. According to Internal Revenue Code Section 30D: “For vehicles acquired after 12/31/2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5-kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt-hour of battery capacity over 5 kilowatt-hours. The total amount of the credit allowed for a vehicle is limited to $7,500.” That’s a wordy way of saying: You get $2,500You also get an additional $417 if the vehicle contains a battery of at least 5 kWhYou get another $417 for each kWh after the initial 5 kWh For example: A car with a 14 kWh battery pack would be eligible for a credit of $6,670$2,500 + $417 (for the initial 5 kWh) + $3,753 ($417 x the remaining 9 kWh) = $6,670A car with a 20 kWh battery pack would be eligible for the full credit of $7,500$2,500 + $417 (for the initial 5 kWh) + $6,255 ($417 x the remaining 15 kWh) = $9,172 Note that although the calculations on the car with the 20 kWh battery add up to $9,172, the car owner will only get $7,500 in credit since the incentive does include a cap. What Is the EV Credit Phase Out? As we mentioned earlier, the point of the electric vehicle incentive program is to encourage people to buy electric cars, which in turn incentivizes manufacturers to keep making them and eventually make more electric than traditional automobiles. As electric vehicles' prices go down and become normalized in consumers’ minds, sales naturally go up. This means that there will be less need for the credit program over time, as electric vehicles become the default. Rather than stopping the credit program entirely right away, the government phases manufacturers out of eligibility as their sales pass 200,000 qualifying units. The phase-out begins in the second quarter after they pass the sales threshold. What this looks like is: Manufacturer Sells 200,000th Vehicle2 and 3 Financial Quarters Later4 and 5 Financial Quarters Later6+ Financial Quarters Later100% of Credit50% of Credit25% of Credit0% of Credit$7,500$3,750$1,875$0(Source: IRS) So far, only two manufacturers have sold more than 200,000 qualifying vehicles since 2010: General MotorsTesla Some of their cars are eligible for full credit, some partial, and some none. It all comes down to when you bought the vehicle, as you’ll see in the next section. Vehicles Currently Being Phased Out It can be a little confusing when you try to picture exactly what the credit will look like for cars in the process of being phased out, so it might help to show you the current vehicles undergoing the phase-out process and the percent of the credit they’re eligible for, according to the IRS. General Motors, LLC YearModelBought through 3/31/2019Bought4/1/2019 - 9/30/2019Bought 10/1/2019 - 3/31/2020Bought on or after4/1/20202017-2020Chevrolet Bolt$7,500$3,750$1,875$02011-2019Chevrolet Volt$7,500$3,750$1,875$02017-2018Cadillac CT6 Plug-In$7,500$3,750$1,875$02014, 2016Cadillac ELR$7,500$3,750$1,875$02014-2016Chevrolet Spark EV$7,500$3,750$1,875$0(Source: IRS) Tesla, Inc. YearModelBought through 12/31/2018Bought 1/1/2019 - 6/30/2019Bought 7/1/2019 - 12/31/2019Bought on or after1/1/20202008-2011Roadster$7,500$3,750$1,875$02012-2020Model S$7,500$3,750$1,875$02016-2020Model X$7,500$3,750$1,875$02020Model 3 Standard Range$7,500$3,750$1,875$02019-2020Model 3 Standard Range Plus$7,500$3,750$1,875$02017-2020Model 3 Long Range$7,500$3,750$1,875$02018-2020Model 3 Long Range AWD and AWD Performance$7,500$3,750$1,875$02018-2020Model 3 Mid-Range$7,500$3,750$1,875$0(Source: IRS) Only these two manufacturers are being phased out of the credit so far, but who’s next in line? Who’s Next to Be Phased Out? As mentioned, manufacturers are phased out of the tax incentive program once they prove that they don’t need help encouraging people to buy their EVs. The magic number that shows the government that people respond well to a manufacturer’s products is 200,000. General Motors and Tesla are miles ahead of the competition, but others are catching up pretty quickly. Right now, the closest contenders are: Nissan: 144,913Toyota: 127,593Ford: 123,320BMW: 100,670Fiat Chrysler Automotive: 46,978 As you can see, Nissan, the manufacturer closest to hitting the mark, is still over 55,000 vehicles away. Fiat Chrysler isn’t even a quarter of the way there, and they’re fifth on the list of all manufacturers, which just goes to show how few sales most companies still show for electric vehicles. So, although the credit isn’t likely to completely go away any time soon, it will become unavailable for certain companies as they sell more units. Keep this in mind when deciding on a make and model, although ultimately, it’s more important that you’re happy with the car than that you get a tax credit, of course. Other Credits and Incentives Available Even if your vehicle doesn’t happen to be eligible for the EV tax credit, other credits and incentives are available for electric cars that are worth looking into. Alternative Fuel Vehicle Refueling Property Credit The federal government also provides up to $1,000 or 30% of the installation of an electric vehicle charging station, in addition to the Plug-In Electric Drive Vehicle Credit. This rebate is known as the Alternative Fuel Vehicle Refueling Property Credit, and you can claim it at tax time by filling out Form 8911. State and Local Credits and Incentives The federal government isn’t the only entity looking to encourage people to buy EVs. Your state and local government might offer tax credits too, plus other incentives as well. Add all these together with the federal credit, and you’re looking at a pretty sweet deal when it comes to buying a new electric vehicle. State and Local Tax Credits and Rebates Every state offers something different when it comes to electric vehicle incentives. The credits and rebates vary widely from state to state, but most provide something. Many states offer incentives for: Electric vehiclesInstallation of charging stationsInstallation of solar panels for charging The EVSE (Electrical Vehicle Supply Equipment) Rebate, for example, is a tax rebate that many states offer, which will reduce what you owe in taxes based on how much you spend on the installation of an EV charging station. Because each state’s EVSE rebates are so different, check with your local government to see what your state offers. Tesla offers a pretty comprehensive list of what financial incentives each state offers, but here are some highlights: Up to $5,000 rebate for purchase or lease of a new EV (Vermont)Up to $5,000 grant for lower-income households wishing to purchase an EV (California and Vermont)$700 rebate on wall connectors and installation (Maryland) Keep in mind that these credits and rebates can be used in addition to the federal incentives—it’s not one or the other. Other State and Local Incentives Everybody loves tax rebates, but you usually only get to enjoy them once, at tax time. But fortunately, there are plenty of other incentives that state and local governments often offer for purchasing an electric vehicle, like: Access to bus lanesToll creditsFree parkingHOV lane exemptionState emissions exemptionA reduced vehicle license taxLowered vehicle registration fee Many states offer energy incentives for solar power use as well, in addition to the incentives provided by local utility companies, as we will go into below. Buy an electric vehicle, and the benefits just keep coming, it seems. Not only are there numerous ways that EVs save you money, but they can save you a lot of hassle, too. Just picture being able to hop into the HOV lane next time you’re in a hurry. Or imagine not having to deal with the annual annoyance of smog testing or oil changes. Utility Company Credits As you can probably guess, governmental agencies aren’t the only ones offering EV incentives. Your local utility company may also provide credits, rebates, or reduced rates. As with the state governmental rebates, the best way to determine if your local utility companies offer EV incentives is to check their website or give them a call. We mentioned earlier that some states offer energy incentives if you install solar panels for charging your EV. But there are also a surprising number of local utility companies, in 50% of the states, that are doing their part to encourage electric vehicle use as well. As you might expect, their offerings vary from company to company, but Tesla’s list gives you a pretty good idea of what you might expect. Some of the most common or most noteworthy incentives offered are the following: Reduced electricity rates based on time-of-use chargingRebate for home EV charging equipment installationRebate for EV chargingFree charging for one yearAdditional rebates for teachers and first responders As you can see by this small sample, and even more so if you look at the full list, incentives vary considerably between companies. Still, they’re all designed to offset the cost of maintaining an electric vehicle to make them less cost-prohibitive to people. Undoubtedly, as technology improves and electric vehicles become ubiquitous, incentives and discounts like the ones listed above will become the norm rather than the exception. Final Thoughts on Qualifying for the Tax Credit Hopefully, this guide cleared up any questions you may have had about the US government’s Electric Drive Motor Vehicle Credit, whether you qualify for it, and how much of a credit you can look forward to getting. As you know, manufacturers are always inventing newer and better models, so the list will change and grow as time rolls on. If you have any questions about eligibility before buying a new EV, make sure to check the paperwork as well as the IRS’s site.