Electric car tax credits are on the road to receiving a $4,500 boost for those eligible to claim them. Thanks to a proposed bill moving through Congress, part of a $3.5 trillion budget blueprint Democrats passed, you may soon be eligible for $12,500 back on your taxes when buying an EV. It's not for certain yet, though, so read on for the latest surrounding EV tax credits and subsidies.
Will the EV tax credit amount increase?
There are various pieces of legislation under consideration in Congress that, if passed, would increase the total amount available to claim. We first saw a bill to raise the tax credit amount toa few months ago. However, that idea is now making its way through Congress in a more serious manner. This bill adds $4,500 to the current $7,500 tax credit available for a total of $12,500 potentially available to EV buyers. As the bill stands today an EV must be assembled in the US and with union labor, which would . In addition, it must use a US-built battery to qualify for the full $12,500 incentive. The bill is part of a broader Democratic-backed budget plan, but it may change as committees mull it over.
President Joe Biden is keen to, so it's likely a matter of time before we see changes to the tax credit.
What is the EV tax credit?
Internal Revenue Code Section 30D provides a tax credit to any person who purchased a qualifying EV during the year. It includes passenger vehicles and light-duty trucks. The credit first came to life with the Energy Improvement and Extension Act of 2008, and amendments came with the American Recovery and Reinvestment Act of 2009. The latter really gave us the tax credits as we know them today.
The credit provides up to $7,500 in a tax credit when you claim an EV purchase on taxes filed for the year you acquired the vehicle. So, if you bought an EV this year, in 2021, you would claim the purchase when filing your 2021 taxes next year.
Are there federal subsidies for an EV?
Biden's proposed American Jobs Plan included $100 billion in subsidies for EV buyers, if passed. However, on June 24, the president agreed to athat does not include these subsidies. However, after Senate Democrats passed a $3.5 trillion budget blueprint, House Democrats called for EV subsidies to be included in any final legislation. The proposal calls for $160 billion to fund subsidies and purchase incentives, EV charging infrastructure funding, EV manufacturing incentives, federal EV procurement requirements, and incentives to electrify heavy-duty commercial fleets.
Do EV tax credits count for used electric cars?
Like leasing an EV, buying a used electric car also does not allow you to claim the traditional EV tax credit in any way. However, a new bill titled the Affordable EVs for Working Families Act may change that. The legislation would provide up to $2,500 back for an individual filing their taxes and claiming a used EV purchase. For individuals, the $2,500 starts to phase out on income of $75,000 per year; those filing jointly would see the $2,500 sunset when reporting $150,000-plus worth of income. According to the bill, a used EV would need to be at least two years old and cost under $25,000 to qualify for the $2,500 back. If passed, it could provide another option for those priced out of a new EV.
How do I get the full $7,500 tax credit today?
The Internal Revenue Service's Form 8936 is how you calculate how much money back you'll receive, which you'll need to fill out and file with your taxes. Every vehicle with a plug earns a minimum of $2,500 from the EV tax credit -- that includes a plug-in hybrid, not just a totally battery-electric vehicle. The vehicle must include at least 5 kilowatt-hours worth of power from its onboard battery. However, the government adds money to the credit for each additional kWh worth of energy packed into a battery. For every extra kWh, the tax credit increases by $417. This is where the dollar figures can shift around since it depends on the vehicle, not your finances.
For example, a Kia Niro plug-in hybrid is eligible for $4,543 from the tax credit, due to its battery size. PHEVs often have smaller batteries than EVs, since they share powertrain efforts with an internal-combustion engine. But, the Kia Niro EV is eligible for the full $7,500 tax credit because of its larger battery size. The government caps the credit at $7,500 maximum. Even for EVs with giant batteries, they aren't candidates for more money. In most cases, pure EVs are the target cars for the total cash back from the tax credit.
Why can't I claim the EV tax credit for my Tesla?
Tesla is by far the largest EV maker in the US today. However, those who purchase an EV from the automaker will not be eligible to claim the car on their taxes. That's because the current law for the credits phases them out after a particular automakers sells over 200,000 qualifying vehicles. In Tesla's case, it, leaving no additional tax credits to take advantage of. The same goes for . A Chevy, GMC, Buick or Cadillac EV is not eligible for the EV tax credit as of today. The automakers continue to lobby for new legislation to make credits available to them once again.
What if I owe money on my taxes when claiming the credit?
This is the best case scenario, actually. The EV tax credit is a nonrefundable credit. In other words, the government does not cut you a check for the balance. So, say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let's also say you purchased ain 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of tax bill and then some. Essentially, purchasing an EV can wipe away tax bills very well. It does not, however, put cash directly into your pocket. Keep that in mind if you're someone who typically receives a federal refund when filing taxes.
Can I lease an EV and claim the tax credit?
Unfortunately, there is no tax credit if you decide to lease a new electric vehicle. Instead, the tax credit actually goes back to the automaker or lender financing the leased vehicle. So, to actually earn the tax credit benefit, you need to purchase an EV -- not lease one.
What are the state EV credits and incentives?
Many states and even local governments looking to speed up EV adoption rates offer their own incentives. California is a leader in incentivizing EV purchases with a direct consumer rebate up to $4,500, for example, through the. There is currently a waitlist for application, however. Colorado, Washington and New England states also offer some generous state incentives that you can combine with the federal EV tax credit. Even your local utility company may subsidize an EV purchase.