How Does the Federal Tax Credit for Electric Cars Work?

If you have been researching an electric vehicle (EV) to buy in the Toms River area, you’ve probably heard about the federal incentive. But what is it, and how does the federal tax credit for electric cars work, exactly? The federal tax credit starts at a minimum of $2,500 and can go up to $7,500, depending on the car’s traction battery capacity and gross vehicle weight rating. When you purchase an eligible EV, you may be able to earn this credit, so this is yet another reason why a driver like yourself might opt for an EV next. Find out which models qualify for this credit and if you can enjoy this incentive below with the finance team at Automotive Avenues!

Which Models are Applicable for this Electric Car Tax Credit? 

Whenever this electric car tax credit is mentioned, it often sounds like every electric model is applicable. However, that is false. You may be able to earn this credit when you buy a qualified new EV after December 31, 2009. In addition to the model being new, a qualifying EV also needs to meet the following criteria:

• Draws propulsion using a traction battery that has at least 5 kilowatt-hours (kWh) of capacity
• Uses an external source of energy to recharge the battery
• Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
• Meets specified emission standards 
• Has to be mostly driven in the United States

If you’re considering a plug-in or battery EV, you will need to keep in mind that the model you’re interested in has to be built by a qualified manufacturer in order to earn the maximum electric car tax credit of $7,500. It also needs to have a battery pack that is rated for at least four kWh of energy storage and can be recharged from an external source. 

Am I Eligible for the Federal Electric Car Tax Credit? 

You’ve checked that the model you want is qualified for this tax credit. Now, you’ll need to see if the credit can be applied to your taxes. First, remember that this tax credit is only available if you buy the vehicle. If you lease an EV instead, the tax credit will go to the lending institution instead as they technically own it. 

Once you know you’re set on buying an EV, you’ll need to consider how much you will owe in income tax for that year. This amount is key because it caps how much of the tax credit you can get. For example, if you buy an electric model eligible for the full $7,500 and you owe $3,000 in income tax, then you can only earn $3,000 of the credit. Similarly, say if that model is only eligible for $1,500, then you will earn only $1,500 instead. In other words, you can only earn the full amount if you owe at least $7,500 in income tax the year you bought your EV and the model has an eligible electric car tax credit for $7,500. 

Lastly, keep in mind that you cannot pass on the tax credit to someone else even if you decide to sell your EV. Only the registered owner of an eligible model can claim this credit, so if you want to buy a used model instead, you won’t be able to access this credit. 

How Long Will the Federal Electric Car Tax Credit Be Available? 

With more and more electric models released from many manufacturers, this tax credit does come to a stop at a certain point. Once a manufacturer has sold 200,000 eligible plug-in electric models or EVs, the credit will phase out after the second quarter. Because of this limit, you won’t be able to claim this credit on some models from manufacturers that have already reached this limit. For example, any Tesla and General Motors (GM) EVs won’t be qualified for the credit. View the list of qualifying manufacturers from the IRS. 

Save on a EV Today in Wall! 

Now that you know the answer to “How does the federal tax credit for electric cars work?” figure out if you’re qualified to claim it! Make sure to check out the new vehicle specials at Automotive Avenues and speak with our finance team to see how else you can save on your EV purchase near Howell Township and Trenton. Contact us with any questions and we’ll be happy to get you into the electric world at a price that you love!