Electric Vehicle Federal Tax Credit
Save up to $7500 on your taxes, maybe more.
Since 2010, the federal government implemented a program that offers up to $7500 in tax credits for those that purchase EVs. The purpose of the program is to encourage potential auto buyers to buy an EV rather than purchase an ICE vehicle. The idea is to bring the price lower of the EV and closer to the cost of a regular vehicle.
Some EVs have already been phased out of the federal program—tax credits decrease based on that company’s total EV sales from 2010 on. However, many vehicles still qualify.
The credit is available for both all electric vehicles and plug-in hybrids. The amount of the credit depends on a several factors and is used to decrease the taxes you owe in the year of purchase. For example, if you owe $8500 in federal taxes and you purchased an eligible EV with the $7500 tax credit, you would only owe $1000.
The amount of tax credit, depends on the size of the battery in the car. A qualifying car starts with a base incentive of $2500. For every 5 kWh of battery capacity, the vehicle qualifies for another $417 up to the amount of $7500.
The phase out begins once an automaker sells a total of 200,000 units that qualify for the rebate. Then it is reduced by 50 percent for two quarters and then 25 percent for the following two quarters. After that point, the vehicles made by the automaker will no longer qualify.
To date only two automakers have been phased out of the program: General Motors and Tesla. Their vehicles no longer qualify for tax credits. The EPA has a running list of vehicles that qualify, the amount they qualify for, and the dates that the vehicles need to be bought by to qualify for the credits once an automaker reaches the phase-out portion of the program.
When filing your taxes, you will need to fill out Form 8936 along with your tax return. These are non-refundable tax credits, which means that the credits can only be applied to the taxes you owe in that given year, and if you received more in credits than you owe in taxes, you will not receive the difference in the form of a check.
You cannot qualify for the credit when leasing the vehicle. However in most cases, the manufacturer figures it into the price of the lease, so you receive the benefit that way.
In some cases there are State incentives as well as utility incentive which differ from state to state, and in some instances county to county or city to city. ClipperCreek provides an up-to-date guide to where additional EV incentives are available across the country.
List of vehicles and amount of federal tax credit as of today: https://www.fueleconomy.gov/feg/taxevb.shtml