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Blogging Beyond the Numbers

Plug in tax savings for electric and hybrid vehicles
Posted by: Pete Oettinger 3 weeks ago

While the number of plug-in electric vehicles (EVs) is still small compared with other cars on the road, it’s growing — especially in certain parts of the country.


If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. 


 

Tax credit basics

You can claim the federal tax credit for buying a qualifying new (not used) plug-in electric vehicle. The credit can be worth up to $7,500. Unlike most tax credits in the tax code, there are no income restrictions, so almost everyone can qualify.

A qualifying vehicle can be either fully electric or a plug-in electric-gasoline hybrid. In addition, the vehicle must be purchased rather than leased.  This is because the credit is allowed to be claimed only by the owner of the electric vehicle.  If you lease a vehicle, then you do not own the vehicle. The company that you are leasing the vehicle from owns the vehicle and would qualify to claim the credit.  If you do lease the vehicle, be sure the tax credit is factored into the residual value or lease payments of the vehicle from the owner.

The credit equals $2,500 for a vehicle powered by a four-kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.  This credit is claimed on form 8834 Qualified Electric Vehicle Credit and is attached to your income tax return form 1040 to receive your payment from the IRS.

Phase out

As with any good news in the tax code, this credit also can only provide so much tax relief.  The credit begins phasing out for a manufacturer over four calendar quarters once the manufacturer sells more than 200,000 qualifying vehicles for use in the United States. The IRS has recently announced that GM had sold more than 200,000 qualifying vehicles through the fourth quarter of 2018. So, the phase-out rule has been triggered for GM vehicles, as of April 1, 2019. The credit for GM vehicles purchased between April 1, 2019, and September 30, 2019, is reduced to 50% of the otherwise allowable amount. For GM vehicles purchased between October 1, 2019, and March 31, 2020, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for GM vehicles purchased after March 31, 2020.

The IRS previously announced that Tesla had also sold more than 200,000 qualifying vehicles through the third quarter of 2018. This means the phase-out rule was triggered for Tesla vehicles, effective as of January 1, 2019. The credit for Tesla vehicles purchased between January 1, 2019, and June 30, 2019, is reduced to 50% of the otherwise allowable amount. For Tesla vehicles purchased between July 1, 2019, and December 31, 2019, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for Tesla vehicles purchased after December 31, 2019.

Despite the phase-out kicking in for GM and Tesla vehicles, there are still many other electric vehicles on the market. For an index of manufacturers and credit amounts, visit this IRS Web page: https://bit.ly/2vqC8vM.

Contact us if you want more information about the tax breaks that may be available for these vehicles.

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