How You can Benefit from the Electric Vehicle Tax CreditApril 06, 2021
Thinking of purchasing an electric vehicle? You could qualify for a tax credit.
Electric vehicles are growing in popularity by the minute. So much so, GM has recently announced that by 2035 they will only offer electric vehicles, and end production of cars, trucks and SUVs (with diesel and gasoline-powered engines). What’s the benefit to these vehicles, you might ask? Well, in addition to being environmentally friendly, there are also tax benefits available for electric car owners. Learn more below.
What is an electric vehicle?
Electric vehicles, also known as EVs or plug-in vehicles, derive all or part of their power from electricity, instead of an internal combustion engine powered by burning a mix of fuel and gases. Benefits of EVs include reduced fuel costs, lower petroleum consumption and reduced tailpipe emissions.
What are the tax benefits for owning an electric vehicle?
You may qualify for a tax credit on your 1040 when you buy an EV. The credit can be up to $7,500 but is subject to a phase-out based on the number of vehicles sold by the manufacturer.
What are the requirements?
To claim the credit on your tax return, there are six requirements that must be met:
The vehicle must:
- Have at least four wheels manufactured primarily for use on public streets, roads and highways.
- Be considered a motor vehicle for purposes of Title II of the Clean Air Act.
- Have a gross vehicle weight rating of less than 14,000 pounds.
- Be propelled significantly by an electric motor that draws electricity from a 4 kw hour capacity battery and can be recharged from an external electricity source.
- Be primarily used in the U.S.
- Be originally used by you.
How do you know how much of a credit you’re eligible for?
The credit ranges from $2,500 to $7,500 (depending on the battery capacity). It starts to phase out for a manufacturer when that manufacturer sells 200,000 qualified vehicles.
If you acquired your vehicle after December 31, 2009, the credit is equal to $2,500 plus (for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt (kw) of capacity), $417, plus an additional $417 for each kw hour of battery capacity in excess of 5 kw hours.
The IRS maintains a detailed list of vehicles, makes and models and the full credit for which they are eligible.
Questions? Contact us.