Did you know you can get a tax credit valued as high as $7,500 just for buying an electric vehicle? Federal and even state tax credits from the purchase of electric vehicles makes it affordable to drive that brand new electric car of your dreams. This article will show you how it works and how you can cash in on those tax credits.
Qualified Plug-In Electric Vehicle Tax Credit
Internal Revenue Code (IRC) Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. The minimum credit is equal to $2,500 and can go as high as $7,500 per qualifying vehicle. The credit is based on the battery’s kilowatt capacity per hour – the more efficient the vehicle, the bigger the credit.
You’ll have to act fast though if you want the biggest bang for your buck. Credits phase out based on the number of vehicles sold and will be capped after the manufacturer sells 200,000 units. This means the credit will be less valuable for more popular cars and could be eliminated for tops brands like Tesla (if they ever get their production issues figured out).
For a full list of qualified vehicles and the amount of the tax credit available you can checkout the IRS website for the latest updates.
How To Claim The Credit
So you’ve decided on the vehicle of choice and you’re ready to take the next step – what now? Well, the federal tax credit isn’t like other rebates and incentives the car dealership has to offer. This deal is only available when you file your taxes.
To claim the credit you will need to file Form 8936 and attach it to your federal tax return. This can be terrifying because the credit may be lower than expected if you don’t do your proper research. Since this is a federal tax issue and not just a dealership issue you want to get a second opinion from your tax accountant.
What If I Lease an Electric Vehicle?
Unfortunately, If you lease a vehicle that is eligible for the tax credit you will not be entitled to that tax credit. Only the owner of the vehicle (i.e. the leasing company) can claim the credit. However, leasing companies will tend to roll the credit into the deal and pass the savings along to the customer.
Depending on the dealership, you can have leases for electric vehicles with no cash down or lower monthly payments due to the incentive being factored into the lease terms.
Does My State Offer Incentives?
Believe it or not, states will often add additional rebates and tax incentives on top of the already attractive federal tax credits. If you live in a state that incentivizes the purchase of electric vehicles then you can save even more money. Checkout the Department of Energy’s website to see a full list of states that offer tax incentives for electric vehicles.
Do Your Homework Before You Buy
The tax incentives can be great for electric vehicles but you want to make sure you do your homework before jumping into electric vehicle ownership. Here’s a short checklist to help decide if an electric vehicle is for you:
- Are there charging stations where you live?
- What is the range of the vehicle and do you feel comfortable based on your daily commute?
- Does the price work for your budget? Even with the credit electric vehicles can be significantly more expensive than traditional gas-powered vehicles.
- Is the vehicle eligible for a tax credit?
- Does your state offer incentives?
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