How Does the Federal Tax Credit for Electric Cars Work?

Are you curious why you should buy a new electric car like other Birmingham drivers? Plenty of exciting benefits await you, including reduced maintenance, freedom from high gas prices, and a potential electric car tax credit. How does the federal tax credit for electric cars work? This guide from the team at Tuscaloosa Ford provides an overview of the qualifications for the electric vehicle federal tax credit. Find out if you’re eligible below.

Which Models Are Applicable for this Electric Car Tax Credit?

Whenever this electric car tax credit is mentioned, it often sounds like every electric model is applicable. However, that is false. You may be able to earn this credit when you buy a qualified new EV after December 31, 2009. In addition to the model being new, a qualifying EV also needs to meet the following criteria:

• Draws propulsion using a traction battery that has at least 7 kilowatt-hours (kWh) of capacity
• Uses an external source of energy to recharge the battery
• Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
• Meets specified emission standards
• Has to be mostly driven in the United States

If you’re considering a plug-in or battery EV, you will need to keep in mind that the model you’re interested in has to be built by a qualified manufacturer in order to earn the maximum electric car tax credit of $7,500. It also needs to have a battery pack that is rated for at least four kWh of energy storage and can be recharged from an external source.

Am I Eligible for the Federal Electric Car Tax Credit?

You’ve checked that the model you want is qualified for this tax credit. Now, you’ll need to see if the credit can be applied to your taxes. First, remember that this tax credit is only available if you buy the vehicle. If you lease an EV instead, the tax credit will go to the lending institution instead as they technically own it.

Once you know you’re set on buying an EV, you’ll need to consider how much you will owe in income tax for that year. This amount is key because it caps how much of the tax credit you can get. For example, if you buy an electric model eligible for the full $7,500 and you owe $3,000 in income tax, then you can only earn $3,000 of the credit. Similarly, say if that model is only eligible for $1,500, then you will earn only $1,500 instead. In other words, you can only earn the full amount if you owe at least $7,500 in income tax the year you bought your EV and the model has an eligible electric car tax credit for $7,500.

Lastly, keep in mind that you cannot pass on the tax credit to someone else even if you decide to sell your EV. Only the registered owner of an eligible model can claim this credit, so if you want to buy a used model instead, you won’t be able to access this credit.

How Long Will the Federal Electric Car Tax Credit Be Available?

With more and more electric models released from many manufacturers, this tax credit does come to a stop at a certain point. Once a manufacturer has sold 200,000 eligible plug-in electric models or EVs, the credit will phase out after the second quarter. Because of this limit, you won’t be able to claim this credit on some models from manufacturers that have already reached this limit. For example, any Tesla and General Motors (GM) EVs won’t be qualified for the credit. View the list of qualifying manufacturers from the IRS.

Shop for a New Electric Vehicle in Tuscaloosa

Now that you know how the federal tax credit for electric cars works, please don’t hesitate to contact us at Tuscaloosa Ford if you have any other questions or want more reasons why you should buy an electric car. You’re also welcome to visit our dealership near Bessemer and Centreville to explore our inventory of new hybrids and EVs for sale. Our finance department is happy to walk you through the car-buying process.