Driving an electric car could save you thousands of dollars. Thanks to the federal electric car credit, buying an electric car will finally pay off.
You’ve been caring for the environment. Now, it’s time to get rewarded.
If you haven’t taken advantage of the electric car tax credit yet, keep reading. We’re going to share everything you need to know.
How Much Is the Federal Electric Car Credit?
The amount of money that you can get for driving an electric car depends on the model and the year. Later, we’ll list every electric car that qualifies for the electric car tax credit as of 2022.
As you’re reading through the tax credit, you should note that each value is up to that number.
For example, Subaru’s Crosstrek Hybrid has a credit amount of $4,502. But, this credit does not come in the form of an IRS tax refund. It will only apply to money that you owe to the government.
Let’s say that you owe the government $3,000 on this year’s taxes. If you have this particular tax credit, you’ll get $3,000 of the $4,502. So, you’ll break even but you won’t get the extra $1,502 from the credit.
Which Cars Qualify for the Electric Car Tax Credit?
Code Section 30D of the Internal Revenue Code provides the vehicle and credit index for the electric car tax credit. The government updates this list often.
As new vehicles come out or existing vehicles reach their sales limit, vehicles get added and removed from the list.
The sales limit that we’re referring to is 200,000 vehicles. Once a car manufacturer hits that limit, the government takes the entire company off of the list.
If you’re looking for a specific vehicle, you can look at the full list of accepted vehicles. However, there is a shortlist of the vehicles that fall under eligibility for the full $7,500 federal tax credit:
- Audi eTron, eTron Sportback, A7 TFSI e Quattro, and Q5 TFSI e Quattro
- Bentley Bentayga Hybrid
- BMW X5 xDrive45e
- Chrysler Pacifica Hybrid
- Ford Mustang Mach-E
- Honda Clarity Plug-in Hybrid
- Hyundai Ioniq EV and Kona EV
- Jaguar I-Pace
- Jeep Wrangler 4xe
- Kia Niro EV and EV6
- Lexus NX
- Mazda MX-30
- Mercedes-Benz EQS
- Mini Cooper SE Hardtop
- Nissan Leaf
- Polestar 1 and 2
- Porshe Cayenne, Panamera, and Taycan
- Rivian R1T
- Toyota RAV4 Prime
- Volkswagen ID.4
- Volvo S60 Recharge, S90 Recharge, V60 Recharge, XC40 Recharge, XC60 Recharge, and XC90 Recharge
If you own (or are thinking about owning) any of these vehicles, you should opt for a new model. Taking advantage of the full electric car tax credit may be worth the increased price.
Does the Federal Electric Car Credit Run Out?
Unfortunately, the answer is yes.
The United States government is working on slowly phasing out these tax credits. More and more of these kinds of vehicles are selling.
The high cost that comes with this new technology will eventually come down. When the price comes down to a certain point, there won’t be any more need for subsidies.
The expiration date for this electric car tax credit is different for each manufacturer. And, the IRS only plans these expiration dates when the manufacturer hits 200,000 sales.
For example, Tesla hit 200,000 sales in July 2018. In turn, there are no more federal tax credits for these vehicles.
Later, GM became the second car manufacturer to hit this milestone. Like Tesla, none of the new electric vehicles for GM are on the federal car tax credit list.
According to financial analysts, Nissan may be the next to go. However, projections don’t show this happening for another few years.
If you’re looking to jump on one of Nissan’s electric vehicles, now may be the time to get your finances in order.
Can You Pass Vehicle Tax Credits to Others?
If you bought a low-mileage pre-used car, you may be wondering who gets the tax credit.
Unfortunately, the answer is not you.
Only the original owner of the vehicle can claim the electric vehicle tax credit. Even if the original owner of the vehicle didn’t claim the tax credit, that doesn’t mean that you can. The tax credit cannot get passed on, no matter what.
You should keep this in mind if you’re looking to buy an electric vehicle soon. A new model with the tax credit still intact may be a better deal than a used model without the tax credit.
What’s the Fine Print Behind the Electric Vehicle Incentives?
The number one “catch” that may get you when you’re trying to take advantage of this tax credit is that it only goes to the original buyer. If you bought the vehicle used, you cannot use the federal electric car tax credit.
With this, there are a few other terms and conditions to know.
- If you’re leasing the electric vehicle, the tax credit goes to the person you’re leasing the vehicle from
- You do not qualify for the electric car tax credit if you bought the vehicle with the intention of reselling it
- You must primarily use the vehicle in the United States
- Your electric vehicle must be on the list of qualified manufacturers and models to get the full credit
- Any plug-ins and hybrids must have battery packs that have at least 4 kWh of energy storage, and you must be able to recharge them from an external source
- Manufacturers are not required to provide certification that various electric vehicles meet the requirements set forth by the IRS
Lastly, we should point out that the IRS – as always – has the right to reject any tax credit claim. So, you shouldn’t depend on the money that you may get from the tax credit.
Are There Electric Car Tax Credits From States or Other Sources?
Yes! There are many state and regional incentives for the owners of plug-in vehicles and vehicles that use alternative sources of fuel.
Many of these incentives come in the form of exemptions from fees or inspections. You may get free parking or access to the carpool lane.
However, many of these incentives require that the person claiming the credit is a business owner.
If you’re a retail buyer of an electric vehicle, there is some cost relief that you can get in the form of tax credits, rebates, and reduced or waived fees.
To check the incentives in your state, look at Plug In America’s interactive map.
What About Fuel Cell Cars?
If you’re using a fuel cell car, you may be in luck. Hydrogen fuel cell electric cars do qualify for incentives in various states.
The US Department of Energy posts and updates the hydrogen laws and incentives for each state.
Frequently Asked Questions About the Federal Electric Car Tax Credit
Even though there’s a lot of information out there about the federal electric car tax credit, many consumers still have a lot of questions regarding the tax credit and how it works.
Here are some of the most common questions we hear about the federal electric car credit.
Can I Still Get the Electric Car Tax Credit?
The electric car tax credit is still available. However, there are fewer manufacturers on the list than there were when the program first started. You should keep this in mind as you’re looking for an electric vehicle to buy.
If you’ve already bought an electric vehicle, you should check whether or not you qualify for the credit before you prepare your taxes for that year.
If you don’t qualify for the federal electric car credit, you should still check state and regional credits. You could get some other kind of incentive from electric car programs closer to home.
How Does the Federal Electric Car Tax Credit Work?
This is a tax credit. As such, the government will apply it to your taxes at the very end.
When you’re done filling in all of your information, you’ll get a number. Either you’ll owe money to the government, or they’ll owe you money.
After considering that number, the government will take your electric car tax credit into account. Most are up to $7,500, so we’ll use this as an example.
Remember, this amount is “up to” for a reason. The government will not give you any money back on the credit.
So, you’ll break even on your taxes if you owe the government $7,500 or less on your taxes. If you owe more, you’ll owe the government $7,500 less than you would have. If the government owes you, you will not get reimbursement for the electric car tax credit because they will not add the amount onto a positive number.
How Long Does It Take to Get the Tax Credit?
Unfortunately, the money doesn’t come to you right after you buy the vehicle. It’s a tax credit. So, it applies to your taxes which you won’t do until the beginning of next year.
If you’re buying an electric car now, you’ll need to front the money to the government as a part of the purchase deal that you’re making.
Many car manufacturers love to use the tax credit to convince people to buy electric vehicles. They may even consider the tax credit as a discount on the car’s price.
But, this isn’t accurate.
The government allows you to claim up to $7,500 on your taxes with this credit. It’s not a direct reimbursement to your bank account.
This tax credit only does one thing: reduces tax liability.
If you have little to no tax liability, the credit won’t do much for you.
As for the buying process, you’ll still need to pay the full price for the car as you’ve agreed upon with the seller. Then, you can apply for the credit next time you file your taxes.
Is There a Credit for Driving an Electric Car in 2022?
Yes, there are still electric car tax credits available in 2022. In fact, there are more state and local incentives than in years before.
However, you should keep in mind that cars are disappearing off of the federal list as these companies sell more units.
If the government hasn’t removed the automaker of your electric vehicle yet, you can assume that you’ll be able to apply for some kind of credit. However, you should keep in mind that the government reserves the right to reject the application.
With that in mind, you should not depend on this credit to help you with any tax issues that you may have. Assume that you’re going to have to pay all of your taxes without applying the credit.
Then, if you’re accepted, you can get excited about all of the money you’re going to save.
Will New Tesla Vehicles Be Eligible for an Electric Vehicle Tax Credit in 2022?
The government removed Tesla from the manufacturer list for electric cars. The company has sold more than 200,000 units.
The Department of Energy does not reset the list every year. Rather, they’re slowly shortening the list as companies sell more and more electric and hybrid vehicles.
However, you may still be eligible for electric car incentives locally. Your state or city may have rewards for citizens who drive an electric car.
Does California Offer a Tax Credit for Electric Cars?
California does its tax credits for electric vehicles a little differently. They offer rebates rather than tax credits.
You may receive up to $1,500 for electric vehicles and plug-in vehicles. The exact amount will depend on the size of the battery.
If you’re living in the state of California, you should check with your local government about electric car incentives. Depending on your location within California, you could get extra cash, access to more road privileges, or some other kinds of incentives.
Learn More About Tax and Business From the Experts
There are a lot of misconceptions about the federal electric car credit. But, we hope that this in-depth article answered any and all questions you have.
But, there are more money-saving tips where that came from.
Our experts at Tax Savers can help you with all kinds of tax questions you may have. Check out the tax section of our blog for more.