Thinking About Buying an EV? Read This First!
Here’s what to buyers need know about EV incentives at the state and federal level.
By Sheryll Poe
From the White House to the Munich Auto Show to the U.S. Open, and even outer space, electric vehicles are everywhere. But if you’re a consumer thinking about putting an EV in your own home garage, there are a few things to know, particularly when it comes to collecting EV tax credits.
Eight Things to Know About EV Incentives
EV tax credits are currently up to $7500 – but depend on several factors. – Consumers purchasing a qualifying EV are eligible for a federal income tax credit of up to $7,500. “Up to” is an important distinction. The minimum credit actually starts at $2,500 for any plug-in hybrid or electric battery vehicle that uses at least 5 kilowatt-hours worth of power from its onboard battery.
Your credit depends on the type of EV you buy. – The credit could go up to $7,500 depending on the vehicle’s battery capacity and the gross vehicle weight rating. For every extra kWh over the 5 kWh floor, the tax credit increases by $417. If you buy a purely electric vehicle with a larger battery, you have a better chance of qualifying for the full $7,500 maximum. The U.S. Department of Energy maintains a list of qualifying vehicles and the credit amounts, as does the IRS.
Credits aren’t available for all manufacturers. – It’s important to keep in mind that the current law phases out credits for automakers who sell over 200,000 qualifying vehicles. A few large EV manufacturers such as Tesla and General Motors (including Cadillac and Chevrolet) have already sold 200,000 qualifying vehicles, and purchases of EVs from these automakers are no longer eligible for the federal EV tax credit.
The credit isn’t issued in the form of a check. – The federal EV tax credit incentive is not bestowed in the form of a check. It is a credit towards owed federal taxes. If you owe $5,000 at the end of the tax year, and you purchased a qualifying EV that is eligible for the full $7,500 incentive, the federal credit will offset your owed tax to the tune of $5,000. You will not receive a check for the remaining $2,500 either, nor does the credit carry over to the next tax year. The credit only goes toward your federal tax bill in the year you purchased the EV.
You won’t get a credit if you lease your EV. – The manufacturer is still the owner of a car if you lease it, so if you lease an EV, the manufacturer gets the tax credit, not the car driver.
You can get a federal tax credit for charging equipment. – EV purchasers can receive a 30% federal tax credit for costs of a residential charging station, including installation costs, up to $1,000, provided the equipment is purchased and installed by December 31, 2021. Businesses and commercial customers can recoup 30% of the cost for equipment and installation, up to $30,000. The Alternative Fuel Infrastructure Tax Credit is retroactive back to 2017.
You could also be eligible for state and even local EV incentives. – Many states also offer tax credits for EVs and charging equipment. Some states, including California, Colorado, New York and Washington, can be quite generous. For example, Colorado offers an income tax credit of $4,000 for those that purchase an EV and $2,000 for those who lease an EV. That’s on top of the federal tax credit. The U.S. Department of Energy has a chart of state incentives, and Plug In America has an interactive U.S. map.
Federal EV credits are here to stay—and might even increase. – The Biden Administration has a goal to increase EV purchases. There are numerous legislative proposals working their way through Congress at this time to increase the tax credit.