Federal Tax Credits for Electric Vehicles
Tax Credits for EVs and Hybrids
While Tesla electric vehicles are no longer eligible for the full $7500 federal tax credit, there are plenty of battery electric vehicles (BEVs) and plug-in hybrids (PHEVs) where you can still receive the full credit.
To get the most government assistance possible on going green, it helps to know how the credit works, which vehicles are eligible, and how to go about claiming that credit when you file your taxes for the year.
How the Electric Car Tax Credit Works
Current federal tax credits of up to $7500 are available for new all-electric cars or plug-in hybrid vehicles, thus significantly lowering your total cost.
Not all vehicles are eligible, however, and the credit amount varies based on the capacity of the battery.
Let's break it down:
Credit amount = $2500 base credit for eligible electric vehicles and hybrids
+ $417 for a battery with ≥ 5 kilowatt hours capacity
+ $417 for each kilowatt hour above 5 kilowatt hours capacity*
*up to $7500 limit
The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles from that manufacturer have been sold. After that, the credit phases out at 50% for two quarters, 25% for the next two quarters, and no credit thereafter.
If you are leasing the vehicle, the tax credit will go to the dealership offering the lease instead of you, but most dealerships will apply that toward lowering your monthly payments or your down payment.
There are two easy ways to determine whether a particular vehicle is eligible:
1. Visit the U.S. Department of Energy page (link to https://fueleconomy.gov/feg/taxevb.shtml), which includes a comprehensive list of eligible vehicles by make and model and is regularly updated.
2. Visit the IRS page (link to https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit), the ultimate authority on eligibility.
For vehicles not listed on the Department of Energy or IRS websites, you can typically rely on manufacturer claims of eligibility found on their website or elsewhere in writing.
How to Claim Your Tax Credit (It's Easy)
- Fill out IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (link to https://www.irs.gov/pub/irs-pdf/f8936.pdf).
- If the vehicle is for personal use, report the credit from Form 8936 on the appropriate line of your Form 1040, U.S. Individual Income Tax Return.
In addition to the federal tax credit, you may also be eligible for sizable state rebates and incentives, depending on where you live. Oregon electric car rebates (link to GreenCars article), for example, offer up to $5000 in rebates, which added to the $7500 tax credit could mean $12,500 off certain makes and models. To find out about incentives in your area, visit the Alternative Fuels Data Center incentives page. (link to https://afdc.energy.gov/laws)
Other FAQs on Tax Credits
Q: Is there a tax credit for used electric cars?
A: No, at this time the federal tax credit is only for new all-electric vehicles or plug-in hybrid vehicles.
Q: Is there a tax credit for conventional hybrid cars?
A: No, the tax credit is only for electric cars and plug-in hybrid cars.
Q: Is there an income limit for receiving the electric car tax credit?
A: No, income does not affect whether you are eligible for the federal credit; however, certain state incentives are income-based.
Electric Vehicles & Plug-in Hybrids Still Eligible for $7500 Tax Credit (link to Lithia inventory)
U.S. Department of Energy List of Eligible Vehicles (link to https://fueleconomy.gov/feg/taxevb.shtml)
IRS List of Eligible Vehicles (link to https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit)
IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (link to https://www.irs.gov/pub/irs-pdf/f8936.pdf)