EV Tax Credit: How It Works – What Qualifies

Understanding the EV Tax Credit

The Electric Vehicle (EV) Tax Credit is a federal tax credit that offers up to $7,500 to individuals who purchase an eligible electric car. But how does this credit work, and what qualifies for it? Here’s a breakdown of everything you need to know:

How the EV Tax Credit Works

The EV Tax Credit is a non-refundable credit, meaning that it can only reduce your tax liability to $0. This means that if you owe less than $7,500 in federal taxes in the year you purchase the EV, you won’t be able to take full advantage of the credit. However, unused credits can be carried forward to future tax years.

To claim the credit, you’ll need to complete IRS Form 8936 and attach it to your federal tax return. The credit is applied to the tax liability of the taxpayer named on the return, and cannot be transferred to others.

What Qualifies for the EV Tax Credit

Not all electric cars qualify for the full credit amount of $7,500. The credit amount varies based on the battery capacity of the EV, and will begin to phase out once a manufacturer has sold 200,000 EVs.

Here are some of the specific requirements that must be met in order to qualify for the EV Tax Credit:

• The vehicle must have a battery capacity of at least 4-kilowatt hours (kWh), and must be powered primarily by the battery.
• The vehicle must be brand new and purchased for personal use (not for resale).
• The vehicle must be acquired for use or lease by the taxpayer, and not for someone else.
• The vehicle must be used primarily in the U.S.
• The taxpayer claiming the credit must be the owner of the vehicle and must not have reached their individual or company’s credit limit.

Frequently Asked Questions

1. Can I claim the EV Tax Credit if I lease an electric car?

Yes, you can claim the EV Tax Credit if you lease a qualifying electric car, but the credit goes to the leasing company rather than the individual leasing the car. The amount of the credit is usually factored into the lease agreement, which can help reduce monthly lease payments.

2. Is the EV Tax Credit refundable?

No, the EV Tax Credit is not refundable. It can only be used to offset your tax liability for the year in which the electric car is purchased. However, any unused credit can be carried over to future tax years.

3. Do used electric cars qualify for the EV Tax Credit?

No, the EV Tax Credit only applies to new electric cars that are purchased for personal use. Used electric cars do not qualify for any federal tax credits or incentives.

4. Does the EV Tax Credit apply to plug-in hybrid electric cars?

Some plug-in hybrid electric cars do qualify for the EV Tax Credit, but the credit amount is based on the battery capacity of the car. A plug-in hybrid with a larger battery capacity will qualify for a higher credit amount.

5. Can I claim the EV Tax Credit for multiple electric cars?

Yes, there is no limit to the number of electric cars that you can claim the EV Tax Credit for, as long as they meet the eligibility criteria. However, the credit is subject to a phase-out once a manufacturer has sold 200,000 electric cars.

6. If I buy an electric car this year, can I claim the EV Tax Credit on next year’s tax return?

No, the EV Tax Credit can only be claimed in the same year that the electric car is purchased. However, if you don’t owe the full amount of the credit in taxes for that year, any unused credit can be carried over to future tax years.

7. Can I claim the EV Tax Credit and the Alternative Motor Vehicle Credit on the same tax return?

No, you cannot claim both credits in the same tax year. You must choose which credit to claim based on which one provides the most benefit.

8. Do electric motorcycles qualify for the EV Tax Credit?

No, electric motorcycles do not qualify for the EV Tax Credit. The credit only applies to four-wheeled electric cars that meet the eligibility criteria.

9. What happens if I buy an electric car from a manufacturer that has already sold 200,000 units?

If you purchase an electric car from a manufacturer that has already sold 200,000 units, the amount of the EV Tax Credit will begin to phase out. For example, if you buy a Tesla electric car in 2021, you will only be eligible for a credit of $3,750, because Tesla has already hit the 200,000 unit limit.

10. Is the EV Tax Credit subject to income limits?

No, there are no income limits for the EV Tax Credit. Anyone who owns a qualifying electric car can claim the credit, as long as they have a federal tax liability for the year.