Federal Tax Credits For Plug-In Hybrids, Electric Cars

If you want to get a spe­cial incen­tive for dri­ving a hybrid, you’re a few years too late; but a tax cred­it applies to near­ly every elec­tric car and plug-in hybrid on the mar­ket and it can, in some cas­es, effec­tive­ly reduce your cost for such a mod­el to that of an ordi­nary gaso­line vehi­cle (or even less).

The wide­ly men­tioned $7,500 tax cred­it is arguably con­fus­ing from the start. The fed­er­al gov­ern­ment gives infor­ma­tion on it from a ‘Tax Incen­tives Resource Cen­ter,’ but it isn’t treat­ed as an incen­tive or rebate to con­sumers, so you don’t get it at the time of pur­chase. It’s not a tax deduc­tion (a reduc­tion in tax­able income) either. With a tax cred­it, you reduce the amount of income tax you owe.

What you need to know:

♦ Use it or lose it. Per­haps the biggest aster­isk is that you have a tax lia­bil­i­ty for that year that meets or exceeds $7,500. If you owe less than that amount for the tax year, you lose the rest of the cred­it (no, it isn’t an addi­tion­al ‘refund,’ and any left over can’t be applied to your per­son­al tax­es the fol­low­ing year).

♦ Not all elec­tric vehi­cles and plug-ins qual­i­fy. To be includ­ed on the fed­er­al list of vehi­cles that qual­i­fy, the vehi­cle must be made by a man­u­fac­tur­er (it can’t be a con­ver­sion); it must com­ply with the legal def­i­n­i­tion of a motor vehi­cle as per the Clean Air Act, title II; and it must have a gross vehi­cle weight rat­ing (GVWR) of 14,000 pounds or less.

♦ You must buy it new, for your own use. Oth­er require­ments are that the new vehi­cle have its ‘orig­i­nal use’ with the tax­pay­er who’s claim­ing the cred­it. It can’t be for resale, and if it is sold, it’s a used car. Fur­ther­more, it needs to be a vehi­cle that’s used most­ly in the U.S.; and you have to claim the cred­it for the tax year that the vehi­cle is placed in ser­vice.

♦ If you lease, you prob­a­bly can’t claim it. In what’s per­haps the most com­mon mis­con­cep­tion for those just start­ing out cross-shop­ping EVs. Almost always—but not in every instance—the amount of the cred­it is claimed by the leas­ing com­pa­ny (who legal­ly ‘owns’ the new vehi­cle), allow­ing a more attrac­tive lease pay­ment.

♦ Check all of this with your tax pre­par­er before buy­ing. Keep in mind that dif­fer­ent rules apply for busi­ness use, and to busi­ness own­ers look­ing to take advan­tage of this cred­it. If your pur­chase is at all depen­dent on the cred­it, talk to your tax pre­par­er first. Or bet­ter yet, have an accoun­tant who’s famil­iar with this run your num­bers and ask you any impor­tant ques­tions. And yes, addi­tion­al local and state cred­its or incen­tives might apply; your tax pre­par­er or accoun­tant should be able to advise on which ones apply to your sit­u­a­tion.

Read the orig­i­nal arti­cle in its entire­ty.

 

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