Electric Vehicle and Hybrid Tax Credits
A lot of people buy electric vehicles or hybrids for fuel savings, but the tax credit associated with these vehicles may be an even bigger draw. A $7,500 tax credit can be quite the incentive! But there is more to know than just a number (like everything to do with taxes). Here is what you should know about electric vehicle (EV) and hybrid tax credits.
Don’t expect a check. It’s a credit not a rebate. That means you can receive up to the maximum amount reduced from your income tax. If your tax bill is only $5,000, then receiving the full EV tax credit would zero out your bill—but you won’t get a check for the remaining $2,500. The small print basically says that it’s up to a $7,500 non-refundable credit.
Not all credits are the same. Depending on the vehicle you’re looking at, you may not get a $7,500 credit. As time passes, the amount of tax credit offered on a vehicle drops because the amount offered is based on sales volume—the more popular vehicles that have been around longer (i.e. higher sales volume) get a smaller credit when purchased. A 2012–18 Ford Focus EV will net you a $7,500 credit, but a Prius will get you somewhere between $2,500 and $4,502, depending on the year of the vehicle.
There is a limit. The credit only applies to a certain number of vehicles. Each company is limited to 200,000 credits. There is some leeway since it’s impossible to know who bought the 200,000th car, but if there is a car you want and the manufacturer is getting close to its limit, act soon. Tesla is the first to have run out of credit qualifications. GM followed shortly behind. So if you want a Tesla, sorry, you’re not getting a tax credit. But don’t worry; there are still plenty of options out there. If you’re more focused on the deal than the vehicle, you should have no problem finding something that suits your needs.
There are more credits. Most people focus on the federal credit. However, there are state credits too! So even if you missed out on a Tesla federal tax credit, you might still get a credit through your state’s program. Better yet, you can stack your credits and rebates. If you live in a state with a credit or rebate, you can get more money back by cashing in at both the federal and state levels.
More than cars. As mentioned above, states are doing their own thing. Not all of those credits or rebates are for the vehicle itself. Electric vehicles and plug-in hybrids require special equipment to charge. A lot of states offer programs to reduce or totally off-set the cost of installing a charging system. Some of these programs apply to businesses too. If you own a business, you could install a charger at little to no cost.
This could also be applied to an apartment complex or condo development. If you live in a communal living development and buy or lease a plug-in vehicle, you could work with the property management to install a charger for your new vehicle.
Paperwork. To claim your federal tax credit, you’ll need to fill out Form 9836 and Form 1040. There are a few other criteria you’ll need to meet to get your credit:
- Proof you own the vehicle. If it is leased, only the lessor can claim the credit since they actually own the vehicle.
- Proof the vehicle is registered and used during the tax year.
- Only using the vehicle on public roads and highways.
- Being the first person to use the vehicle.
- Not acquiring the vehicle for the sole purpose of resale.
- Mostly using the vehicle in the U.S.