As part of the U.S. government’s push to reduce emissions across the nation, they have made a specialized tax credit available for taxpayers who choose to invest in electric cars. The electric vehicle tax credit was created to provide an incentive to citizens to purchase electric cars.
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What is an Electric Vehicle Tax Credit?
The electric vehicle tax credit is a credit designed to offset the higher costs of electric cars. There is only a limited number of them given to manufacturers.
The idea is that over time the technology used to produce electric cars will become more widely available and cheaper.
These tax credits have yet to expire, so prospective electric car owners can still claim the electric car tax credit.
Remember that leasing an electric car will not provide the tax credit as the leasing company still technically own the car. However, many companies renting out these cars will lower the monthly costs as they are still able to claim the credit.
The tax credit also only applies to new vehicles not used ones.
How Much is the Electric Vehicle Tax Credit Worth?
A buyer of a new electric car can receive a tax credit valued at between $2,500 and $7,500. The amount of credit you are entitled to depends on the battery capacity and size of the vehicle.
Visit FuelEconomy.gov for an insight into the types of tax credit available for specific models.
The tax credit expires for each manufacturer after more than 200,000 tax credits have been claimed from cars sold by them.
How Does the Tax Credit for Electric Cars Work?
Electric car tax credits are available to the owners of electric cars only. It is not available to resellers of electric cars. The owner must also be mainly using the car within the U.S, so you cannot claim the credit if you plan on attaching a foreign license plate to it.
The manufacturer must be eligible for the tax credit. Furthermore, the battery must be a minimum of 4 kWh and be rechargeable from an external source.
The IRS also reserves the right to deny an application for an electric car tax credit.
For electric cars purchased for business use, many states and localities offer tax exemption status.
Finally, electric car tax credits may not be transferred to a new vehicle owner. This should be considered if you intend on purchasing an electric car for a family member. The first registered owner is the only individual able to claim the tax credit, so you cannot buy an electric car from a reseller and claim the credit.
How Can I Claim the Electric Vehicle Tax Credit?
You can claim the tax credit when you file your Federal tax return. The amount of tax credit you can claim depends on how much you owe in taxes as this is a non-refundable tax credit. You cannot claim a tax refund through the electric vehicle tax credit.
For example, if you can claim a $7,500 tax credit but the amount you owe is only $5,000, you will only be able to use $5,000 of the available tax credit.
You will need to file Form 8936 to claim the credit. If you are using the vehicle for personal use, you will report the tax credit amount on Form 1040.
Why Should I Purchase an Electric Car?
As well as the environmental benefits, there are significant financial advantages to owning an electric car in the long-term. By saving on fuel and the tax credit, you will already be making your money back on your initial investment.
Many cities also offer their own local rebate options. The tax credit may also be applied to the Alternative Minimum Tax (AMT).
You should check with your local government office to find out about the programs you can take advantage of within your state and city. Sometimes you can claim reductions in the vehicle registration fee, rebates, access to special loans, and even free parking.
For example, California offers a $2,500 rebate on certain models of electric cars, as well as a $1,500 rebate on others. Hybrids tend to apply to the latter.
Hydrogen fuel cell powered cars are entitled to a $5,000 rebate in California.
TurboTax Helps You Claim the Credit!
Don’t worry about knowing about how to claim the electric car tax credit. TurboTax will ask you simple question and give you the tax deductions and credits you’re eligible for based on your answers.
If you have questions you can connect live via one-way video to a TurboTax tax expert or CPA with an average of 12 years experience to get your tax questions answered. TurboTax Live tax experts and CPAs are available in English and Spanish and can also review, sign, and file your tax return.
