You believe in the sustainable mission of electric vehicles (EV), but then you look into how much one costs and you get sticker shock. But then again, you hear the federal government is offering tax credits for EV purchases, and you think you’re back in the game.
Time out. Bring it in for a huddle.
Before you start planning where to install your charging system, it’s important you know the basics about federal EV tax credits.
- The credit ranges from $2,500 to $7,500, depending on the battery capacity.
- Federal tax credits aren’t immediate. You have to wait until you’re filing your taxes to claim your purchase.
- The IRS will determine the actual federal credit amount based on your tax bill. Only if the bill is lower than the credit will you receive the balance as a refund.
Now here’s the clincher: Are you deserving of a federal EV tax credit? Of course we say, “You sure are!” But we’re talking about the IRS, after all. They have a lot of qualifiers and disqualifiers for eligibility, both detailed and broad. Let’s dive in.
- The EV manufacturer has to have sold less than 200,000 units. Tesla and GM have been ineligible since meeting the sold vehicle cap in 2018. Nissan is nearing the threshold.
- Qualifying vehicles are all-electric (AEV) or plug-in hybrid electric (PHEV). PHEVs must check off a few more boxes:
- You must be the original buyer of a new qualifying EV.
- For consumer-leased EVs, the federal tax credit goes to the lessor (leasing agent) rather than the lessee (you). Lessors may factor the credit into the cost of the lease to lower your monthly payment, but that’s their call.
- Businesses buying EVs for the company may not qualify if you are not in a taxable position. Your best move is to consult with your tax department for direction.
- We can try to structure a lease for fleets that allows the business to take advantage of the federal credit if you are in a taxable position. Note: this does not reduce the vehicle cost; the credit will appear as a deduction on your tax bill.
If you strike out in terms of federal tax credits, there’s still a chance you can get rewarded elsewhere, and some of these apply only to businesses.
Want more good news? While you have to wait for tax season to apply for tax credits, you can claim rebates during or right after your EV purchase!
- Depending on where you are, you may be eligible for state or local tax credits, rebates, reduced vehicle taxes, and exemptions from fees or inspections. See the Full List of State Incentives
- Some utility companies offer additional incentives like cash back for buying an EV and home charging system, discounted rates for charging during off-peak hours, and other credits.
- Non-cash incentives include carpool lane access and free municipal parking.
- In some states, purchases of hydrogen fuel cell electric vehicles qualify as well.
Be a knowledgeable shopper. States occasionally change their programs, so check before shopping.
This is EV tax credits and incentives in a nutshell. There are still a lot of balls in the air as the Biden administration is working to eliminate the OEM cap and extend the federal tax credit for EVs assembled in the U.S. and by union workers.
You can find the latest news on EV credits and incentives in The Morning Brake e-newsletter and MOTIVE podcast. And as always, don’t hesitate to contact us with your questions or concerns. We’re happy to listen and offer advice.