If you’ve recently bought an electric or hybrid vehicle, you could be eligible for a federal income tax credit of up to $7,500. There might be additional state tax breaks and other incentives available to you depending on where you live.
However, the tax break is subject to a complex phaseout rule based on sales made by a given manufacturer. The phaseout may reduce or eliminate the tax credit. Vehicles of two manufacturers have already begun to be phased out, meaning they qualify for only a partial tax credit.
You can claim the federal tax credit for buying a qualifying new plug-in electric vehicle. Previously owned EVs don’t qualify for the tax credit. There are no income restrictions, so all income levels can qualify.
A qualifying vehicle can be either fully electric or a plug-in hybrid. The electric vehicle must be purchased rather than leased because the credit for a leased vehicle belongs to the manufacturer.
The credit for a vehicle powered by a four-kilowatt-hour battery equals $2,500, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The credit can be worth up to $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.
The phaseout rule
Over four calendar quarters, the credit begins phasing out for a manufacturer once it sells more than 200,000 qualifying vehicles for use in the United States. For example, the IRS recently announced that GM had sold more than 200,000 qualifying vehicles through the fourth quarter of 2018. So, as of April 1, 2019, the phaseout rule has been triggered for GM vehicles. The credit for GM vehicles purchased between April 1, 2019, and September 30, 2019, is minimized to 50% of the allowable amount. For GM vehicles purchased between October 1, 2019, and March 31, 2020, the credit is decreased to 25% of the permitted amount. After March 31, 2020, no credit will be allowed for purchased GM vehicles.
The phaseout rule was also triggered for Tesla vehicles, effective as of January 1, 2019. The credit for Tesla vehicles bought between January 1, 2019, and June 30, 2019, is reduced to 50% of the approved amount. For Tesla vehicles purchased between July 1, 2019, and December 31, 2019, the credit is reduced to 25% of the allowable amount. No credit will be allowed for Tesla vehicles purchased after December 31, 2019.
There are still many other Electric Vehicles on the market besides GM and Tesla if you’re interested in purchasing one and getting the full tax credit. The IRS Web page: https://bit.ly/2vqC8vM, has an index of qualifying manufacturers and credit amounts available for you to explore. Contact us if you want more information about the tax breaks that might be available for your new electric vehicle.