Electric vehicles used to be a transportation option commonly associated with climate-conscious car buyers. However, that is no longer the case. The EV market has experienced some serious growth over the past few years. As a result, registrations of these vehicles keep increasing daily.
Driving an EV comes with several perks. Apart from the obvious, which is saving on the cost of gas, you will also be able to take advantage of tax credits awarded to those who buy an electric vehicle. Depending on where you stay, purchasing an electric car can save you thousands of dollars.
The money you save can even help to offset the cost of installing an EV charger at home. So how do EV tax credits work?
Electric vehicle tax credits are non-refundable tax credits that are awarded to those who buy a vehicle powered by a motor that draws power from external electrical sources. These credits apply to hybrids and pure electric vehicles.
The tax credits that you get from purchasing an electric vehicle depend on various factors. These are basically used to lower the amount of taxes you own in a given year. For example, if you buy an electric vehicle that qualifies for a tax credit of $7500, and your federal taxes for that year amount to $8500, you would only need to pay a thousand dollars in taxes.
So what determines how many tax credits you get? Well, the amount of tax incentives for any given car depends on the car’s battery size. Every electric vehicle qualifies for a base incentive of $2500. Then, for each 5 kWh of battery capacity, $417 in credits is added. Some electric vehicles can qualify for tax credits of up to $7500.
Every battery-powered electric vehicle and plug-in hybrid can qualify for tax incentives. It’s important to keep in mind that regular hybrid vehicles are not eligible. There are other regulations as well. For instance, the vehicle has to have a curb weight that is below 14,000 pounds, it should have a battery that’s larger than 5 kWh, and it should be externally rechargeable.
Several car manufacturers have been phased out of the EV tax credit program. This includes Tesla and General Motors. This means the vehicles manufactured by these companies will not qualify for tax credits. If you are unsure whether the car you want to purchase qualifies for tax credits, you can check the EPA’s running list of vehicles that qualify. You will also be able to see the amount they qualify for and when you need to buy them if you want to take advantage of the tax credits.
The process of getting tax credits is quite simple. As you may imagine, the first step is to purchase a car that qualifies. Once you get your car, you can then fill out form 8936 along with your tax return.
You must keep in mind that the tax credits you get with electric vehicles are non-refundable. This means you can only apply them to taxes that you owe in a given year. If it so happens that you receive more in EV tax credits than you own in federal taxes, the government will not give you the difference in the form of a check.
Apart from being non-refundable, these tax credits will also not roll over. They will only apply to your taxes for the given year.
Unfortunately, in most instances, federal tax credits do not apply to those who lease electric vehicles. Instead, the tax credits will go to the lessor.
However, in some instances, this can lead to lower monthly payments. If the lessor decides to factor the incentive into your lease agreement, you can save some money. Try to mention this during your lease contract negotiations. There are some states with incentives that apply regardless of whether you are buying or leasing.
It’s likely that tax credits will be around for a long time. There is a general increase in pushes for more environmentally friendly vehicles. However, because of how tax credits are structured, available vehicles are constantly shifting. For instance, once a car manufacturer sells a total of 200,000 cars that qualify for tax incentives, a phase-out comes into play.
The available tax credit gets reduced by half for two quarters. It then gets reduced by a quarter for the following two quarters. At that point, cars manufactured by that automaker would no longer get tax credits. This is why you always need to always check if the car you are interested in purchasing qualifies for tax credits.
How do EV tax credits work when two members of the same family buy electric vehicles for themselves? Well, in that case, they can separate the claims for the credit for each car. However, if the two purchase the electric vehicle together, they will only be able to claim the credit once.
Electric vehicles are not only cheap to run but cheap to purchase as well. To make life easier for yourself, once you get an electric vehicle, you may also want to look into having an EV charger installed at your home. If this is something you see yourself doing, don’t hesitate to contact our team today.
We offer turn-key solutions for EV charger installation. This means you won’t have to worry about the installation, maintenance, and repairs. We will handle everything for you. We also offer commercial EV charger installation services.