If you are considering the purchase of an electric vehicle, you may want to take advantage of the federal tax incentives available. Currently, a maximum credit of $7,500 is available to buyers of eligible vehicles, while some states also offer their own rebate programs for those who wish to purchase plug-in vehicles. Eligible models include the Nissan Leaf, Chevrolet Volt or Toyota Prius Plug-In. However, the credit amount will vary based on the capacity of the battery used to fuel the vehicle.
Additionally, President Obama has recently proposed a boost to the Federal income tax credit for electric vehicles — to $10,000. Today, buyers of PEV’s are not only able to save money due to grants, tax breaks and rebates but due to the fact that the savings in fuel offsets the higher initial sticker price. Drivers of electric vehicles save an estimated $2,000 per year to run on electric. Over five years, that’s $10,000 on top of the credits and grants that you will receive for converting your vehicle.
The Fine Print of Electric Vehicle Tax Incentives
According to Edmunds, plug-in electric vehicle tax credits for highway-legal cars and trucks are separate for each manufacturer. These credits do not expire based on a specific calendar date, but rather the expiration date comes only after the automaker sells 200,000 qualified vehicles.
A reputable dealership will inform customers of the models in its showroom which are eligible to receive various federal, state and local tax credits and rebates. However, a full list of electric vehicles eligible to receive federal tax credits is available at the US Energy Department’s fuel economy tax web site: http://www.fueleconomy.gov/feg/taxevb.shtml
According to the IRS, buyers can generally rely on the manufacturer’s representation that the vehicle is eligible. However, the smart shopper should be aware that caveats exist. For example, vehicles registered under the dealership’s name — as in the case of demo or lease vehicles — are ineligible because they must be sold as used vehicles.
In some instances, a new model with tax credit is a better deal, especially if the list price is reduced by the maximum credit. However, it is important to bear in mind that the federal credit is good “up to” $7,500. The credit is based on your income for the fiscal year and also on the size of the battery in the electric car.
It is also important to keep in mind that the federal government provides credit for electric-drive vehicles with plug-ins only. (Conventional hybrids – ie. the conventional gas-electric models — do not have batteries that can be plugged into the power grid.)
Additionally, some states may offer their own separate tax credits for buyers of vehicles that run primarily on electricity. These may augment the federal tax credit to reduce the cost of the car as much as $10,000.
Buyers in at least 13 States may be able to find savings in tax credits, reduced vehicle taxes or registration fees for buying a qualified alternative vehicle or electric drivetrain* vehicle. For more information, check the Energy Department’s interactive state incentives chart: http://www.afdc.energy.gov/laws/matrix/incentive.
Additionally, small neighborhood electric vehicles do not qualify for this credit, but there are some other credits available for 2 and 3 wheel vehicles. For example, the new Taxpayer Relief Act restored a credit of 10% of the purchase price for qualified electric motorcycles and three-wheel EV’s – for a maximum of $2,500—until the end of 2013.
*Unfortunately, the 10% credit allocated for electric conversions of gas-powered vehicles expired as of Dec. 31, 2011.