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EV Tax Credit
Everything You Need to Know About Electronic Vehicle (EV) Tax Credits
As the global mobility and automotive sector moved toward greener technologies with battery-powered vehicles, the IRS is rewarding EV buyers with handsome tax credits. EV manufacturers are bringing impressive new cars like the Tesla Model 3, the electric Hummer and the Mustang Mach E to market, while the government is busily incentivizing them for faster adoption.
EVs are estimated to be 40-50% of the total cars sold in the US in the next few years. Electronic vehicles have also created a buzz among buyers in the last few years, thanks to the rapid development of technology and a massive push from electric car manufacturers as a whole. According to a 2019 report, the automotive industry is pegged to spend more than $515 billion on the development and manufacturing of electric vehicles.
If we look into the history of EV tax credits, they came into effect after the Energy Improvement and Extension Act of 2008. It got a further boost with the American Recovery and Reinvestment Act 2009, which was an amendment to the original 2008 act. The Internal Revenue Code Section 30D provides an EV tax credit. It was amended again in 2013 by the American Tax Relief Act for some electric 2- and 3-wheelers.
Table of contents
What are tax credits?
Tax credits are directly deductible from the income tax liability to the IRS. What's great about tax credits is that they generally have a deeper impact on your tax bill by directly reducing the amount of tax you owe, unlike deductibles, which lower your taxable income. There are different types of tax credits like child tax credits, earned income credit, etc., varying on your geographic location, industry, etc.
In a tax credit vs tax deduction scenario, the former is deducted from the tax owed, while the latter is deducted from net taxable income
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What are EV tax credits?
As the name suggests, EV tax credits are provided when you buy an IRS-registered EV. These electric vehicle tax credits are more like green incentives for your contribution to the electrification of the US auto sector. The IRS has a list of qualified EVs; buying one will get you an EV tax incentive. You can check the full list of EVs here.
Several regulations dictate how much tax credit you can get on an EV purchase. Based on these, your EV tax credit can hover between $2,500 to $7,500. Unlike EVs, fossil-fuel-based cars do not attract such tax credits.
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How is my EV tax credit calculated?
The IRS has a set of regulations that ultimately decide your tax credit amount on the purchase of new EV vehicles. The EV tax credits apply to:
- Electric vehicles bought after 2010.
- EVs that have a battery pack with more than 5KW capacity.
- EVs that can be charged using an external source of electricity, like a charging station.
- EVs that weigh up to 14,000 pounds.
Quick tip
If the EV tax credit is a priority for you, then you must aim for vehicles that give the maximum amount for your purchase. Just make sure to check if the vehicle qualifies for the credit from the car dealer itself.
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Does the EV tax credit apply to me?
If you are buying a new EV, then there’s a good chance that you will get the tax credit for the next financial year. The EV tax credit only applies to first owners of an EV and not to owners of used EVs.
Moreover, the credit is not refundable. If your tax liability is less than $7,500, and your EV tax credit is $7,500, you can’t claim the difference as a refund. You also can't carry over the tax credit value from one tax year to the next in case you have a tax liability less than your credit value. If you still have some tax credit left after the deduction, it will lapse once the tax year you bought the EV ends.
There are some income limitations though. For single filers, the EV tax credit begins to phase out after the $400,000 mark, and for joint filers, the income limitation stands at $800,000. Then there are specific cases like the one mentioned here.
Will I get an EV tax credit if I buy a Tesla?
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How do I apply for an EV tax credit?
Once you have acquired a new EV that is one of the qualifying vehicles in Section 30D, you need to apply for an EV tax credit by using the IRS form 8936. You must fill out this form with all the information about your EV and attach it with your regular 1040 income tax return.
Form 8936 also helps in calculating your EV credit. Just fill in basic information such as vehicle make, model, year of manufacture, manufacturer name, etc. to find the amount of your credit.
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What EV car manufacturer still offers the EV tax credit as of 2022?
A whole bunch. Although Tesla and Toyota have already crossed the 200,000th EV threshold, there’s still a large list of automakers that have yet to hit the mark.
Major automobile companies like General Motors, FCA, Ford, Honda, Hyundai, Audi, Mercedes and BMW are yet to reach the mark. Then you also have a whole host of other purely electric companies like the AMP electric vehicles Lucid, Karma, etc., that are available with the benefit of EV credit.
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FlyFin's A.I. reminds you to add any qualified EV purchase to your tax return to avail of the EV tax credit benefits. Deadlines are crucial to applying for the EV tax credit as it’s only valid for the tax year you bought the vehicle in.
FlyFin’s A.I.-powered tax penalty calculator also generates your quarterly estimated taxes for you, based on your income and deductions. The smart Android and iOS applications send you automatic reminders, so you never miss a tax filing deadline or miss out on incentive schemes like the EV tax credit.
FlyFin's tax CPA team is also here for you 24/7 to answer any tax-related questions and support you in filing a 100% accurate tax return for you.
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