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. (Depending on
where you live, there may also be state tax breaks and other incentives.)
However, the federal tax credit is subject to a complex phaseout rule that
may reduce or eliminate the tax break based on how many sales are made by a
given manufacturer. The vehicles of two manufacturers have already begun
to be phased out, which means they now qualify for only a partial tax
credit.
Tax Credit Basics
You can claim the federal tax credit for buying a qualifying new (not used) plug-in EV. The credit can be worth up to $7,500. There are no income restrictions, so even wealthy people 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, because the credit for a leased vehicle belongs to the manufacturer.
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.
How the Phaseout Rule Works
The credit begins phasing out for a manufacturer over four calendar quarters once it sells more than 200,000 qualifying vehicles for use in the United States. The IRS recently announced that GM had sold more than 200,000 qualifying vehicles through the fourth quarter of 2018. So, the phaseout 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 sold more than 200,000 qualifying vehicles through the
third quarter of 2018. So, the phaseout 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.
Powering Forward
Despite the phaseout
kicking in for GM and Tesla vehicles, there are still many other EVs on the
market if you’re interested in purchasing one. For an index of manufacturers
and credit amounts, visit this IRS Web page: https://bit.ly/2vqC8vM. Contact me if you want more information
about the tax breaks that may be available for these vehicles. © 2019