How the EV Tax Credit Works ""

By | June 23, 2017

2017 Chevrolet Bolt EV

To take advantage of tax credits currently being offered on the purchase of electric or hybrid vehicles, first—obviously—you must buy or lease an electric vehicle or a plug-in hybrid for your own personal use.

If it’s an EV, the potential tax credit can be factored into a lease, so you can benefit without outright purchase. Some lease deals let you sign over the amount of the tax credit at the time of signing in exchange for a reduced down payment and lower monthly lease payments; check with your dealer to see if that is the case for the vehicle you want to lease.

You must place the vehicle in service during the tax year for which you’re claiming the credit. If you’re buying, you need to be prepared to finance the full, pre-credit amount of the vehicle. You may want to see your tax advisor to time the purchase. There is no income cap to claim the credit, but you’ll need sufficient tax liability for the year—in other words, the credit is an amount lopped off the income tax you owe; if the amount you owe is less than the credit amount, you won’t get the full value of the credit.

How Much Will the Credit Be?
A base $2500 credit accrues to electrified vehicles, which are EVs or plug-in hybrids, not regular hybrids. Vehicles that are “propelled to a significant extent by an electric motor”—defined as having battery-pack capacities of at least 5 kilowatt-hours—qualify for an additional $417, plus $417 for each 1-kWh increase in battery capacity, up to a maximum of $7500 per vehicle. So, for example, a car with a 6-kWh battery pack would earn $2500 as a base amount, an additional $417 for meeting the 5-kWh threshold, and another $417 for surpassing that threshold by 1 kWh; total credit: $3334. But don’t worry, you’re not required to do the math. The IRS does it for you, with a breakdown of the credit for each make and model here.


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The Phase-Out
The government’s offer of a tax credit is intended to expire eventually. That will happen at a different time for each automaker, with a phase-out period beginning once each manufacturer hits 200,000 plug-in vehicles sold. By some estimates, including a recent projection, Tesla and General Motors will get there first, in 2018, with Nissan likely to hit that number in 2019.

Figuring your own potential tax credit will require further research, because additional incentives may be available in your state. By doing your homework and being mindful of the timing of your purchase, you could see a big payoff.

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