How Does the Electric Car Tax Credit Work?
We’ve all heard that electric cars can save drivers tons of money in fueling costs around O'Fallon, but how does the electric car tax credit work? You may have heard of the $7,500 federal electric vehicle tax credit for alternative-energy vehicles. However, the original tax credit was passed by the government in 2009 – and a lot has changed since then.
What to Know About Electric Vehicle Tax Benefits
- TaxCredit: You don’t get your electric vehicle tax benefits immediately. You’ll need to pay the full amount upfront, and then you can claim up to $7,500 in credit against the federal income taxes you owe in the year in which you buy the car.
- New Cars: Only newly financed cars are eligible for any electric car tax benefits. Used cars and leased vehicles are not eligible.
- Car Types: The credit applies to EV, Plug-in Hybrid, and Fuel Cell vehicles with battery packs 4 kilowatt-hours or greater. The base credit is $2,500 with $417 per kWh above 4 kWh, not to exceed $5,000 for the full $7,500 credit. This formula applies to all battery-electric vehicles as well as plug-in hybrids.
- Incentives: You might qualify for federal, state, or local incentives. Some electric utility services also have incentive programs that are worth investing in.
- Tax Cap: Under the law, the electric vehicle tax benefits were capped for the first 200,000 vehicles built by the manufacturer. This means that very popular options, like Tesla and GM, have already passed this number since 2009.
Which Models are Eligible for the Electric Car Tax Credit?
As we noted from the outset, only certain electric vehicles are actually eligible for the full tax credit. Eligible vehicles must be new, rather than used, and they must be made by a qualifying manufacturer. Then, they must meet all of the following qualifications:
- Draws propulsion using a traction battery that has at least 5 kilowatt-hours (kWh) of capacity
- Uses an external source of energy to recharge the battery
- Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
- Meets specified emission standards
- Has to be mostly driven in the United States
This definition covers the vast majority of plug-in hybrid and battery electric vehicles that are sold in the U.S. today—but the value of the credit will vary depending on what kind of vehicle you purchase. It’s also worth noting that the tax credit will eventually expire for all manufacturers, so it pays to act quickly.
Electric Car Tax Benefits by Brand
- Tesla: No federal tax credits are available on any Tesla model. Tesla buyers still qualify for local, utility, and state incentives in some states
- Chevrolet: Chevy no longer offers a tax credit, but it does offer cashback incentives on the Bolt EV.
- Volvo: Though they offer plug-in hybrids, Volvo does not yet offer any pure EV models.
- Nissan: The Leaf is currently the only model in their lineup that qualifies for the federal incentive, though they are nearing the 200,000 electric vehicle cap.
- Toyota: The only eligible plug-in vehicle they currently sell is the Toyota Prius Prime, as the Mirai does not qualify for the federal tax credit.
- BMW: At its current rate of plug-in vehicle sales, it is likely years from reaching the tax credit cap.
- Mercedes: They have not sold enough EVs to lose the federal tax credit, but they plan to expand their EV options rapidly soon.
- Ford: They are past the halfway point to their 200,000-vehicle cap, and they are expecting to expand their EV options soon.
- Volkswagen: Though they don’t sell any EV or plug-ins currently, the ID group of vehicles is expected to premiere soon.
- Fiat Chrysler: Fiat Chrysler Automobiles is less than a quarter of the way to the federal electric vehicle tax credit limit, though they recently debuted the 4xe plug-in hybrid series.
- Hyundai: They sell several plug-in models, but they haven’t reached the 200,000-vehicle cap.
- Audi: Audi is planning to debut several additional PHEV models in the upcoming years, but they still have a ways to go before the tax credit cap.
- Honda: Honda has eliminated many of its eligible vehicles. Currently, only the Clarity PHEV qualifies – the Honda Clarity Fuel Cell does not.
- Mitsubishi: The Mitsubishi Outlander PHEV is the only qualifying vehicle, so it could be decades before the brand hits the cap.
- Jaguar and Land Rover: Due to their low volume of EV models, they are nowhere near the tax credit cap.
- Porsche: Due to their low volume of EV models, they are nowhere near the tax credit cap.
- Subaru: The Subaru Crosstrek Hybrid is the onlyeligible vehicle, so they have yet to reach the cap.
Am I Eligible for the Federal Electric Car Tax Credit?
If you intend to claim the federal electric car tax credit this year, there are a few more points that you’ll want to keep in mind:
- The tax credit applies to new vehicles only, so it doesn’t apply if you purchase your vehicle pre-owned. Moreover, you cannot pass the credit onto a second owner.
- If you lease, the leasing company continues to own the vehicle—and so the federal electric car tax credit will technically go to them! Buying is the smarter financial option if you want to take advantage of this credit.
Find Out More with Auffenberg Dealer Group
Want to learn more about electric car tax benefits for the Caseyville and East St. Louis area? Contact us at Auffenberg Dealer Group to learn more about your options, and start shopping hybrids and EVs today.
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