Are you confused about which plug-in cars qualify for electric vehicle tax credits? You're not alone. The federal rules are often difficult to understand, even for the lawyers who draft them.
To get you started, here's our plug-in electric vehicle tax credit guide. It answers some crucial questions you might have.
How Much Is the Credit?
You'll often hear that a credit is worth "up to" a certain amount. "Up to" is the critical modifier. The federal incentive is usually referred to as a flat $7,500 credit, but it's only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. Let's say you buy a Nissan Leaf or other eligible vehicle and you owe $5,000 in income tax for a particular year. That's all the tax credit will be. Uncle Sam's not writing a refund check for the other $2,500. And an unused portion of the credit can't be applied against the following year's taxes.
The credits also are based on the electric car's battery size. For some models, the maximum can fall well below $7,500. The Toyota Prius Plug-In, a hybrid hatchback that was discontinued after the 2015 model year, only qualified for a $2,500 federal tax credit.
What Vehicles Currently Qualify for the Federal Credit?
Here's the list, as of April 2016:
|Electric Vehicles||Federal Tax Credit|
|Chevrolet Spark EV||$7,500|
|Ford Focus Electric||$7,500|
|Kia Soul EV||$7,500|
|Mercedes-Benz B-Class EV||$7,500|
|Smart Fortwo EV||$7,500|
|Tesla Model S||$7,500|
|Tesla Model X||$7,500|
|Plug-In Hybrid||Federal Tax Credit|
|Audi A3 e-tron||$4,168|
|BMW i3 (with range extender)||$7,500|
|BMW X5 xDrive40e||$4,668|
|Ford C-Max Energi||$4,007|
|Ford Fusion Energi||$4,007|
|Hyundai Sonata Plug-In Hybrid||$4,919|
|Porsche Cayenne S E-Hybrid||$5,335|
|Porsche Panamera S E-Hybrid||$4,751|
|Porsche 918 Spyder||$3,667|
|Toyota Prius Plug-In||$2,500|
|Volvo XC90 T8||$4,545|
Is There Any Fine Print for Federal Electric Vehicle Tax Credits?
Of course there is. In addition to the rule that limits the federal tax credit to the original buyer of a qualified advanced-technology or alternative fuel vehicle, there are a few other conditions you should know about:
- If you're leasing a vehicle, the credit stays with the leasing company, which is the actual owner of the car or truck. In most cases, however, the tax credit has been factored into the cost of the lease, so the customer still benefits. Lease programs for the Chevrolet Volt and Nissan Leaf, for instance, include the $7,500 tax credit to lower the lease payments.
- The federal tax credit isn't applicable to an electric vehicle being purchased for the purpose of reselling it. That's a gray area, though, and would be tough for authorities to prove.
- The vehicle must primarily be used in the United States.
- Plug-in and battery-electric vehicles must be built by qualified manufacturers in order to qualify for the full $7,500 credit.
- Plug-in hybrids and battery-electric vehicles also must have battery packs that are rated for at least 4 kWh of energy storage and are capable of being recharged from an external source.
- The IRS says that manufacturers are not required to certify to the agency that vehicles meet the requirements to qualify for the various credits. For vehicles not listed on the Energy Department website or on the IRS list of qualified vehicles, a buyer can generally rely on the manufacturer's representation that the vehicle is eligible. That statement can either be in writing or on the company's website. The same thing goes for electric motorcycles, plug-in and EV conversions, three-wheel EVs and low-speed EVs.
- The IRS, of course, always reserves the right to reject a claim for a tax credit.
Do Electric Vehicle Tax Credits Run Out?
Yes. The government is phasing out the electric vehicle tax credits as sales volume increases. It is doing so on the theory that the high initial cost of adding all that new technology to a vehicle will come down as economies of scale improve with increased sales. That's supposed to eliminate the need for subsidies. The expiration date is separate for each manufacturer and comes only after an automaker sells 200,000 qualified vehicles. That's a mark no automaker has yet reached (although Tesla's upcoming Model 3 might be the one). Generally, though, it's a process that could take several years, given the very low sales rates right now for plug-in electric cars.
Can Electric Vehicle Tax Credits Be Passed On?
This question occasionally pops up: Who gets to claim the tax credit in the case of low-mileage cars that dealerships sell after having used them as demonstrators or loaner cars?
The answer is pretty simple: EV tax credits cannot be passed on. Only the original registered owner of an eligible vehicle can claim the federal tax credit. Even if the original registered owner didn't apply for the credit for some reason, it cannot be passed along to a subsequent buyer.
This is useful to know, because it can be a bargaining point in a used-car purchase negotiation. It might turn out that a new model with the tax credit is a better deal than a used one if the federal tax credit program means the list price for the new model is reduced by up to $7,500.
Have Any Programs Expired?
Yes. The federal tax-credit clock ran out on December 30, 2010 for clean diesel vehicles and conventional hybrids, meaning gas-electric models like Hyundai Sonata Hybrid or Toyota Prius. These vehicles don't have batteries that can be plugged into the power grid.
And at the start of 2012, Congress let die a federal credit of up to $2,500 for four-wheel, low-speed neighborhood electric vehicles (NEVs), which are limited to a top speed of 25 mph. But if you're interested in those vehicles, you might want to check individual state and regional programs. Some, like California's Clean Vehicle Rebate Project, still are open to qualifying electric motorcycles and NEVs.
Have Any Programs Been Renewed?
Yes. The Taxpayer Relief Act restored a certain kind of credit until the end of 2013, and has extended every year since then. It gives 10 percent of the purchase price, up to a maximum of $2,500, for qualified electric motorcycles and three-wheel EVs with a battery capacity of at least 2.5 kilowatt-hours.
Can Converted Vehicles Qualify?
No. If you're interested in a car that's been converted from a conventional engine to a plug, you are out of luck. A 10 percent credit (up to a maximum of $4,000) for the cost of converting conventional gas vehicles, diesel vehicles or conventional hybrids to plug-in hybrid or all-electric powertrains expired at the start of 2012.
Are There Tax Credits From States or Other Sources?
Yes. While the federal tax credits for plug-in and natural gas vehicles get the most mention, there also are dozens of state and regional incentives on plug-in vehicles and those that use alternative fuels. Many states have a dozen or more programs. Many, however, apply only to businesses. Some credits come in the form of exemptions from fees and inspections. Others are non-monetary incentives such as carpool lane access and free parking. Alaska is the only state without any sort of incentive.
Retail buyers in at least 13 states can get some cost relief in the form of tax credits, rebates, reduced vehicle taxes or registration fees for buying a qualified alternative-fuel or electric-drive vehicle.
In California, for example, people who buy or lease a full-service electric car such as the Nissan Leaf, Tesla Model S or Ford Focus EV can get a $2,500 cash rebate. That's in addition to the federal tax credit and reduces the out-of-pocket cost of the car by as much as $10,000. Because they have smaller batteries and burn petroleum-based fuel part of the time, the Chevrolet Volt, Ford C-Max Energi, Ford Fusion Energi, Honda Accord Plug-In and Prius Plug-In are eligible only for $1,500 California rebates under the state's clean vehicle rebate program.
As of March 29, 2016, California residents with low incomes can qualify for an additional $1,500 for both full EVs and plug-in hybrids, while those with individual annual incomes of $250,000 or more ($500,000 for a joint return) no longer qualify for plug-in vehicle rebates. To see what your state offers, check the Energy Department's interactive state incentives chart. Another good resource is the interactive plug-in vehicles incentives site maintained by the Plug In America advocacy group.
How About Fuel Cell Cars?
Hydrogen fuel-cell electric vehicles are new on the market and are available only in small numbers in limited areas where retail hydrogen fueling stations exist — mainly in Southern California and the San Francisco Bay Area. These cars qualify for a $5,000 state rebate in California and a base federal tax credit of $4,000, plus additional federal credits of from $1,000 to $4,000, depending on the vehicle's fuel efficiency rating. As of now, the federal credits are only good for cars purchased by the end of 2016.
Presently, only Toyota is marketing fuel cell vehicles, with Honda scheduled to launch a 2017 model in late 2016. Toyota's 2016 Mirai fuel cell car qualifies for a total federal tax credit of up to $8,000, while Hyundai's 2016 Tucson fuel cell SUV is available by lease only, qualifies for a $7,500 credit. But since it's a lease, that money goes to Hyundai.
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