If you’re thinking about buying an electric vehicle (EV), the federal tax credit can save you a lot money.
Because savings are a driving factor for many car shoppers, it pays to know what kinds of incentives are out there.
Electric Vehicle Tax Credit: Everything You Need to Know
In this article, we’ll tell you everything you need to know about the federal tax credit available for 2020.
I’ve been driving an EV for several years now and have thoroughly researched state and federal tax credits and other incentives for a future purchase, as well.
- How Does the Federal Tax Credit Work?
- How Much Is the Tax Credit?
- What States Have EV Incentives?
- Which Vehicles Have Tax Credits?
How Does the Federal Tax Credit Work?
The federal tax credit was put in place to encourage people to buy more energy efficient vehicles. The thing is, the tax credit only applies to eligible models for a limited time.
Once an automaker sells more than 200,000 EVs, the tax credit begins to be reduced until it is phased out altogether.
To get an idea of how the 200,000-vehicle phaseout works, let’s use the Chevrolet Bolt as an example:
|Chevrolet Bolts Purchased||Tax Credit Amount|
|Jan. 1, 2010 to March 31, 2019||$7,500|
|April 1 to Sept. 30, 2019||$3,750|
|Oct. 1, 2019 to March 31, 2020||$1,875|
|After April 1, 2020||$0|
Your eligibility hinges on a number of factors, but the most important is that your car must meet the government’s definition of an electric vehicle.
That means it must get power from an external electric source. Here are some other tax credit requirements you need to know:
- It must be a new vehicle purchased in or after 2010
- It must weigh under 14,000 pounds
- It must have at least four wheels
- It must use a battery with at least 4 kilowatt hours of storage
- It must be driven mostly in the United States
How Much Is the EV Tax Credit?
The amount of the tax credit ranges from $2,500 to $7,500, depending on the size of your battery. Some hybrid electric vehicles have smaller batteries and don’t quality for the maximum tax credit amount.
But if you have a fully electric vehicle and meet all the other criteria we mentioned above, there’s a good chance you qualify for the full amount.
On the other hand, if you owe the IRS $3,000 in taxes and you buy an EV eligible for the full $7,500, you’ll only get a $4,500 credit. See how that works?
On a federal level, there is an Alternative Fuel Infrastructure Tax Credit for fueling equipment installed before December 31, 2020.
What States Have EV Incentives?
An increasing number of states offer emission exemptions and rebates on charging electric vehicles and some have incentives for actually purchasing an EV.
While not an exhaustive list of all the EV subsidies, here are states with major incentives toward buying an EV:
|California||The MCEv Program offers a $3,500 rebate for the purchase or lease of a new EV for income-qualifying customers.|
|Delaware||The Delaware Department of Natural Resources and Environmental Control (DNREC) offers rebates for new or leased Alternative Fuel Vehicles. The rebate amounts for vehicles purchased or leased between January 1, 2020, and December 31, 2020 are: $2,500 for EVs and $1,500 for hybrids|
|Iowa||Central Iowa Power Cooperative (CIPCO) residential customers are eligible for a $500 rebate on the purchase or lease of a plug-in electric or plug-in hybrid electric vehicle.|
|Minnesota||Drivers who purchase or lease a new or used plug-in hybrid electric vehicle receive a $125 credit or a $250 credit for a plug-in electric vehicle (PEV) for all toll roads.|
|New Jersey||The New Jersey Board of Public Utilities offers state residents a rebate in the amount of $25 per mile of electric-only range, up to $5,000, to purchase or lease a new PEV with an MSRP of $55,000 or less.|
|Texas||Electric vehicles powered by a battery or hydrogen fuel cell, including plug-in hybrid electric vehicles with a battery capacity of at least 4 kilowatt hours, are eligible for a rebate of $2,500, for the first 2,000 applicants.|
|Vermont||Vermont Public Power Supply Authority (VPPSA) member customers are eligible for a rebate of up to $1,000 on the purchase of a plug-in electric vehicle, and up to $600 on the purchase of a plug-in hybrid electric vehicle.|
It’s important to note that many electric companies also have rebates on electric vehicle charging equipment. Check with your local utility company for specific details.
Which Vehicles Have Tax Credits?
You may be wondering which vehicles have tax credits. Popular electric vehicles like the Chevy Bolt and Spark have already reached thresholds that have cut their tax credits — and Tesla’s have completely expired.
The credit also won’t be available for General Motors vehicles bought after March 31, 2020, according to the IRS.
But there are other EVs who still have their full tax credits. Here are some examples of the most popular EVs and their tax credit amount, according to the U.S. Department of Energy:
|Make||Model Year(s)||Tax Credit Amount|
|BMW i3 Sedan||2014-2020||$7,500|
|Chevrolet Bolt EV||2017-2019||$1,875 (to 3-31-20)|
|Chevrolet Spark EV||2014-2016||$1,875 (to 3-31-20)|
|Ford Focus EV||2012-2018||$7,500|
|Hyundai Ioniq Electric||2017-2019||$7,500|
|Mercedes B-Class EV||2014-2017||$7,500|
|Porsche Taycan Turbo EV||2020||$7,500|
|Toyota RAV4 EV||2012-2014||$7,500|
As you can see, electric vehicles are benefiting from subsidies on the state and federal level — so you should take advantage while you can. The tax credits, as they’re currently written, will only last so long.
If you choose to lease an EV to see if you like it, remember that tax credit eligibility will remain with the leasing company. It’s a good idea to ask the dealership if the tax credit is figured into the lease price.
If you’re still on the fence, here are some reasons why an EV is cheaper than a gas-powered vehicle.