Thinking about buying a new electric vehicle? Check out the federal tax break.
Electric vehicles (EVs) are a small percentage of cars on the road today, yet they continue to increase in popularity. If you buy one, you could be eligible for a federal tax break.
The tax code provides a credit to those who purchase qualifying plug-in electric-drive motor vehicles, including passenger vehicles and light trucks. The maximum credit for an EV is $7,500 — $2,500 per vehicle plus up to $5,000 more based on battery capacity.
EV definition
To qualify for the tax credit, a vehicle must have four wheels and be propelled to a significant extent by an electric motor that draws from a battery. The battery’s capacity must be at least four kilowatt hours and be rechargeable from an external source of electricity.
The credit may not be available on some EVs due to a per-manufacturer cumulative sales limitation. Specifically, it phases out over six quarters beginning when a manufacturer has sold at least 200,000 qualifying vehicles for use in the U.S., determined on a cumulative basis for sales after Dec. 31, 2009. Tesla and General Motors vehicles, for example, are no longer eligible for the tax credit.
The IRS website provides a list of vehicles that still qualify: https://bit.ly/2Yrhg5Z.
Additional notes about the plug-in EV tax credit:
The credit is allowed in the year you place the EV in service.
The vehicle must be new.
The EV must be used predominantly in the U.S. and have a gross weight of less than 14,000 pounds.
Electric motorcycles
A separate 10 percent federal income tax credit applies to the purchase of qualifying electric two-wheeled vehicles manufactured primarily for use on public thoroughfares and capable of at least 45 miles per hour — electric-powered motorcycles, in other words. The credit, worth up to $2,500, recently was extended to cover qualifying 2021 purchases.
We’re here to help
The information here covers only the basic rules. Your state may provide additional tax incentives, too. Contact us any time for more information.