If you’re like most people, the words “tax break” probably don’t make your heart race with excitement.
But if you’re thinking about buying an electric vehicle (EV), tax breaks may be just what you need to make the switch.
Here’s a look at all about electric vehicle tax breaks, including how they work and which states offer them.
What are electric vehicle tax credits?
Tax credits are a financial incentive that the federal government offers to people who buy electric vehicles. The tax credit is worth up to $7,500 for each vehicle.
To qualify for the tax credit, you must buy a new electric vehicle and certify that it will be used primarily for business purposes. You can’t claim the credit if you leased your vehicle or if you bought it used.
The tax credit for electric vehicles is a non-refundable credit, which means that it can only be applied to offset the taxes you owe.
If the credit is more than the amount of taxes you owe, you won’t receive a refund for the difference.
If you don’t owe any taxes for the year, you won’t be able to receive the tax credit.
The benefits of electric vehicle
1. Reduced cost of purchasing an electric vehicle:
With a federal tax credit of up to $7,500, the cost of an electric vehicle can be significantly reduced. In addition, many states offer their own incentives, which can further reduce the cost.
2. Lower maintenance costs:
Electric vehicles have far fewer moving parts than traditional gasoline-powered vehicles, so they require less maintenance.
3. Cheaper to operate:
Electric vehicles are cheaper to operate than gasoline-powered vehicles because they use electricity, which is a much cheaper fuel than gasoline.
Electric vehicles produce zero emissions, so they’re much better for the environment than gasoline-powered vehicles.
5. Fun to drive:
Electric vehicles are often faster and more fun to drive than traditional gasoline-powered vehicles.
How do EV tax credits work
Owners of electric vehicles may be eligible for a tax credit from the federal government. The amount of the credit depends on the size of the vehicle and its battery capacity.
For example, as of 2019, the tax credit for a Tesla Model S with a 100kWh battery is $7,500. The credit begins to phase out once an automaker has sold 200,000 electric vehicles, so it’s important to check whether the credit is still available when considering the purchase of plug-in hybrids.
Some states also offer additional incentives for owning an electric vehicle, so it’s worth checking with your state’s Department of Motor Vehicles to see what might be available. In sum, electric vehicle tax credits can help offset the cost of purchasing an electric vehicle, making them more affordable for consumers.
Is it complicated to get the tax break?
No, the process for claiming the EV tax credit is relatively straightforward. When you buy an electric vehicle, you’ll receive a certificate from the manufacturer that indicates the amount of credit you’re eligible for.
You’ll then need to file Form 8936 with your federal tax return to claim the credit.
It’s important to keep in mind that the federal credit is only available for new electric vehicles. If you buy a used EV or lease one, you won’t be eligible for the credit.
Are there specific qualifications to get the tax break?
The federal EV tax credit is available to anyone who purchases a qualifying electric vehicle. The full list of qualifying electric mobile cars can be found on the IRS website.
To qualify for the tax break, you must have purchased the vehicle new and used it solely for business purposes. You must also have claimed the electric vehicle as a business expense on your tax return. If you meet these requirements, you can claim a credit of up to $2,500 against your federal income taxes.
Do tax breaks make it worthwhile to purchase an electric vehicle?
There is no simple answer to this question, as the tax breaks and other incentives available for electric vehicles (EVs) vary considerably from country to country. In some cases, such as in the United States, federal and state governments offer a variety of tax credits and rebates that can make purchasing an EV more attractive.
In other countries, like Norway, EVs are exempt from certain taxes, while in Still others, like the United Kingdom, there are no significant financial incentives currently available.
That said, there are a few key points to keep in mind when considering whether or not the tax breaks make it worthwhile to purchase an EV.
- First of all, it’s important to calculate how much you would save in fuel costs over the lifetime of the vehicle. This number can be tricky to estimate, as it will depend on a number of factors, such as how much you drive and the price of gasoline. However, there are a number of online calculators that can help you get an idea of how much you would save.
- In addition, it’s important to consider the range of the EV you’re considering purchasing. Many EVs have a range of 100 miles or less, which may not be sufficient for your needs. If you frequently drive long distances, an EV may not be the best option for you.
- It’s also worth considering the resale value of EVs. Because they are a relatively new technology, EVs tend to depreciate at a faster rate than traditional gasoline-powered vehicles. This means that you may not get as much money back when you sell your EV, which could offset any savings you realize from the tax breaks.
- Ultimately, whether or not the tax breaks make it worthwhile to purchase an EV depends on a number of individual factors. It’s important to do your research and calculate the savings you would realize from the tax breaks before making a decision.
Which states have the best tax breaks?
The best electric vehicle tax breaks are offered by the states of Colorado, Louisiana, and Tennessee.
In Colorado, for example, there is a $5,000 rebate for buyers of electric vehicles and no sales tax on the purchase of an electric car.
In Louisiana, there is a $2,500 rebate plus a $1,500 income tax credit available to residents who buy or lease an electric vehicle.
And in Tennessee, there is a $2,500 rebate plus a 50% exemption from the state’s motor vehicle privilege tax for buyers of electric cars.
The limitations of electric vehicle tax credits
Electric vehicle tax credits are typically capped at $7,500 per vehicle.
In addition, the credit is only available for new vehicles, not used ones. And it’s important to note that the credit may be phased out once a manufacturer has sold 200,000 electric vehicles.
So if you’re considering buying an electric car, it’s important to do your research and calculate the savings you would realize from the tax credit before making a decision.
Pros and cons of Electric Vehicle (EV) tax credits:
•Reduce emissions of greenhouse gases and other pollutants
•Create jobs in the green economy
•Promote the use of domestic renewable energy sources
•Potentially high up-front costs for consumers
•Price fluctuations of electricity may make operating costs higher than gas cars
•Could take many years to see significant reductions in emissions if EVs displace only a small percentage of gas cars
Overall, whether or not the tax breaks make it worthwhile to purchase an EV depends on a number of individual factors. It’s important to do your research and calculate the savings you would realize from the tax breaks before making a decision. Additionally, the best electric vehicle tax breaks are typically offered by state governments.
The Bottom Line
The federal government and many states offer tax breaks and other incentives to encourage people to purchase electric vehicles. These incentives can make EVs more affordable, but it’s important to consider all of the factors before making a decision. Make sure to do your research and calculate the savings you would realize from the tax breaks before making a final decision.
Do you know of any other good tax breaks for electric vehicles? Let us know in the comments!
Is the qualifying vehicle list different for each state?
No, the qualifying vehicle list is the same for all states. The only difference is in the amount of the electric vehicle tax credit. Consult with a tax professional or your state’s tax authority to determine the amount of the credit you may be eligible for.
If the tax bill has already been filed for the year, can I file an amendment to receive the credit?
If you have already filed your taxes for the year, you can file an amended return to claim the credit. However, you will need to file a paper return, as the online filing system does not yet allow for amended returns to be filed electronically.
Is the federal tax credit available for all electric vehicles?
No, the federal tax credits are not available for all electric vehicles. In order to qualify, the vehicle must meet certain requirements, such as having a battery capacity of at least 4 kWh and being capable of being plugged into the electrical grid. The federal income tax credit is also only available for vehicles that are purchased, not leased.
What are local incentives?
Local incentives are typically offered by cities or states and can take the form of tax breaks, discounts, or rebates. These incentives are designed to encourage people to purchase electric vehicles, which can help to reduce pollution and traffic congestion. Many cities also have charging stations available for use by electric vehicle owners. Check with your local government to see what incentives are available in your area.