Electric Car Tax Credits

Wendy Connick
Electric car in charging

Alternative energy cars can be quite expensive, but factor in the post-purchase savings and the numbers start looking much better. Electric car tax credits, available at both the federal and state levels, can make buying such a vehicle relatively affordable.

Federal Electric Car Tax Credits

The Plug-In Electric Drive Vehicle Credit (Internal Revenue Code 30D) first appeared in the Energy Improvement and Extension Act of 2008 and was later amended by the American Recovery and Reinvestment Act (ARRA) of 2009 and the American Taxpayer Relief Act (ATRA) of 2013. Section 30D(a) describes the credit requirements for cars and other four-wheeled vehicles.

Vehicle Requirements

If a vehicle qualifies for the federal tax credit, the manufacturer should include a certificate along with the purchase documentation. However, it's best to confirm that the vehicle meets the latest standards for the credit. The basic requirements for a vehicle to qualify for this credit under Section 30D(a) are:

  • The taxpayer must have bought the vehicle new in 2010 or later and begun driving it the same year the credit was filed.

  • The vehicle must weigh less than 14,000 pounds.

  • The vehicle's battery must have a capacity of at least 4 kilowatt hours (kWh).

  • The vehicle's battery must be rechargeable from an outside source (e.g. a wall outlet).

Phase-Out Period

Once a manufacturer sells at least 200,000 qualifying vehicles in the United States, the tax credit phases out over a year for that manufacturer's cars and then disappears altogether. The IRS website includes a report of cumulative plug-in electric vehicle sales by manufacturer for use in tracking the credit phaseout.

Tax Credit Amount

The available tax credit for Section 30D(a) breaks down as follows:

  • A taxpayer who purchases a qualifying plug-in electric car or truck is eligible for a credit of at least $2,500.

  • The credit increases by $417 for a car with a battery having a minimum capacity of 5 kWh.

  • There's an additional $417 of credit per kWh of battery capacity over the 5 kWh minimum.

  • The maximum total credit available is $7,500 per vehicle.

The IRS has provided a handy chart of qualified plug-in electric cars by manufacturer that includes the federal tax credit amount available for each vehicle.

Limitation

This tax credit is nonrefundable, meaning that a taxpayer can't get back more than the total amount of federal tax he owes. If the person buying the car is eligible for the full $7,500 credit but his total federal tax due for the year is $4,000, he or she can only claim a credit of $4,000. The remaining $3,500 of credit is lost.

Claiming Your Federal Tax Credit

Taxpayers who qualify for the electric car tax credit must fill out Form 8936 and file the form with the rest of the federal tax return to claim the credit. The three-part form is fairly simple:

  • The first part is for basic information about the qualifying vehicle (or vehicles).
  • The second part is only necessary if the taxpayer used the vehicle for business purposes.
  • The third part includes the credit calculations for personal vehicles.

More detailed instructions for filling out Form 8936 are posted on the IRS website.

State Electric Car Tax Credits

A few states offer tax credits for purchasing plug-in electric vehicles or even for modifying a standard vehicle to use electric power. Some of these credits also apply to other types of alternative fuel-based vehicles. To find out if your state has such incentives for the current tax year, check with the state's department of revenue. Examples of states that offer such credits include:

Colorado

Colorado taxpayers can claim a credit on their state taxes for purchase or lease of plug-in electric vehicles and hybrids. The credit amount is based on the vehicle's MSRP (or leased value, for leased vehicles). It is capped at $6,000 for the 2016 tax year.

Louisiana

Residents of Louisiana can receive a credit of 7.2% of the cost of a plug-in electric vehicle's purchase, up to a maximum of $1,500. This credit also applies to vehicles converted to alternative fuels, including electric.

Utah

The state of Utah offers a tax credit of up to $1,500 for purchased and up to $1,000 for leased plug-in electric vehicles. There's also a credit for vehicles converted to alternative fuels; the credit equals 50% of the conversion cost, capped at $1,500.

After You Claim Your Tax Credit

It's always wise to keep a copy of your vehicle's purchase or lease paperwork, but it's especially important if you've claimed a tax credit on that vehicle. The IRS can audit your tax return for up to three years after you file (or even longer if they suspect fraud). If that should happen, you will definitely need these documents to back up your claim for the credit. To be on the safe side, keep all your purchase or lease paperwork for as long as you own the vehicle.

Electric Car Tax Credits