Qualified Plug-In Electric Vehicle Tax Credit

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Jan 01, 2020

By Joel Kratzer, CPA Manager at Terry Lockridge & Dunn

Are you in the market for a new vehicle? Have you considered purchasing an electric vehicle? A growing number of US automakers, such as Audi, Tesla, Nissan, and Hyundai - among others - have increased their electric vehicle offerings as consumer demand for non-combustion engine options grows. While these vehicles provide options for those looking for a vehicle that avoids the use of gas, there are also important tax benefits for purchasing an electric vehicle.

The Federal government allows a tax credit for the purchase of a new qualified plug-in electric vehicle that: 1) contains at least five kilowatt hours of capacity, 2) uses an external source of energy to recharge the vehicle’s battery, 3) has a gross vehicle weight of up to 14,000 pounds, and 4) meets certain emissions requirements.

The minimum tax credit available for any purchaser of a qualified electric vehicle is $2,500. For each kilowatt hour that the vehicle exceeds five, an additional $417 of tax credit is available. The maximum credit that may be awarded is capped at $7,500 for those vehicles that are well above the five-kilowatt hours of capacity requirement.

Before purchasing an electric vehicle, make sure to check whether your specific model still qualifies. The Federal tax credit is available to an automobile manufacturer until the calendar year in which 200,000 of their qualified electric vehicles have been sold. In the following year, the tax credit is cut to 50% if the vehicle is purchased in the first two quarters and 25% if purchased in the last two quarter. After this, the manufacturer’s vehicles are no longer eligible for the credit. The IRS keeps an up-to-date list of qualifying models and whether a phase-out has been initiated: IRS.gov.

While electric vehicles have been on the market for several years, and may be available for sale on the used car market, in order to claim a tax credit, the original use of the electric vehicle must begin with you. Additionally, it must be for use predominantly within the United States.

While the Federal government’s tax credit is the most commonly known, certain states and cities have implemented specific incentives for owning an electric vehicle. Conversely, other states and cities may assess additional charges for the user of an electric vehicle since there is no payment of taxes assessed through the purchase of traditional fuel, such as gas or diesel. Energy.gov provides a database for researching specific incentives and taxes by state.

If you are ready to make the switch to an electric vehicle and not sure which models qualify, check out the comprehensive list of electric vehicles available at fueleconomy.gov.