How To File Form 8: Qualified Plug
Although car and motorcycle manufacturers may advertise the electric vehicle tax credit as a discount on the vehicle, it is not a discount to you as the buyer up front. It simply reduces your tax liability for the year when you purchase the qualified vehicle. You must still pay the full cost of the vehicle as negotiated at the time of sale.
However, when you file your taxes for the year, you will fill out Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit to receive your tax credit and direct dollar-for-dollar reduction of your taxes owed. Because it is a nonrefundable tax credit, you will only receive a credit to the point that your tax liability is reduced to zero. You will not receive the balance back beyond that point. Once you have completed the form, you can submit it along with your taxes when you file them for the year.
Do The Electric Car Tax Credits Expire
The government has already begun to phase out electric vehicle tax credits. This is because sales volume is increasing, and they were introduced to encourage this industry.
Theres no set date for when electric vehicle tax credits are due to expire. It depends on the manufacturer. This arises when a manufacturer sells 200,000 qualifying vehicles. Tesla was the first manufacturer to reach this limit back in July 2018.
Thats why from January 1st to June 30th, 2019, the tax credit has decreased by $3,750. From July 1st until the end of the year, the credit is only worth $1,875. From 2020, you wont be able to claim tax credits on a Tesla.
General Motors became the second manufacturer to hit this milestone in the final financial quarter of 2018. From April 2019, qualifying vehicles are only worth $3,750 in tax credits. Then, from October 2019 to March 2020, the credit drops to $1,875. After that, the credit phases out completely.
Nissan is expected to be the third manufacturer to hit the limit, but as of this writing, its still 70,000 sales away from this. However, analysts expect sales to pick up soon.
Federal Tax Credit: Up To $7500
The first thing to understand is that the tax credit that has been in effect since 2009 was replaced with a tax credit that prioritizes domestic manufacturing of EVs. So, if you have already purchased and received your car by August 16, 2022 , you will be able to claim the $7,500 credit, unless that manufacturer had already reached their sales cap .
If you purchased or received your EV after August 16, 2022 and you did not have a binding contract in place already, you will only be able to qualify for the revised tax credit if your vehicle is eligible.
To qualify for the full $7,500 credit, electric vehicles must be:
- Effective immediately, all EVs must be built in North America to qualify for the tax credit
- Starting in 2023, EV models must meet the following domestic content and sourcing requirements to be eligible for the full tax credit:
- A credit of $3,750 if the materials for an EVs battery have been sourced in the United States
- An additional $3,750 credit if an EV models battery components have been assembled or manufactured in the United States .
As of today, these changes to have drastically reduced the number of vehicles that qualify for the credit. An updated list of vehicles that qualify will be maintained by the Federal Government and can be accessed here. We expect that over time the number of vehicles will grow as the IRA removed the per-manufacturer cap for tax credit eligibility.
You May Like: Do I Have To Do Taxes
State And Local Incentives Near You
Though the federal governments effort makes up the lions share of government EV discounts, some states and local governments offer incentive programs to help new car buyers afford something more efficient. These can be tax credits, rebates, reduced vehicle taxes, single-occupant carpool-lane access stickers, and exemptions from registration or inspection fees.
States like California and New Jersey offer broad support for electric vehicle buyers. For example, residents in New Jersey buying a new or leased zero-emission vehicle can get a sales and use tax exemption. Additionally, the Charge Up New Jersey Program offers a rebate of up to $4,000 at the point of sale to residents who lease or buy a new EV or plug-in hybrids. Amounts vary based on the price of the EV and the electric range as rated by the EPA.
Idaho, Kentucky, and Wyoming are among the states offering no support to individual EV buyers. The U.S. Department of Energy maintains an interactive list of state-level incentives, while Plug In America posts an interactive map of EV incentives.
Is Now The Time To Go Electric
So, as has been noted in recent reports, right now might be the time to go electric if youve been thinking about it. And many Americans may be thinking about it. Thanks in large part to the credit, Cox Automotive predicts that for the first time ever, the U.S. will surpass one million electric vehicles sold this year.
But there might also be some value in waiting until next year to go electric. If you make a qualified EV purchase this year, you can apply the credit when you file your taxes next year.
But those who buy an EV next year can take advantage of a new provision thatll kick in which will allow them to transfer the credit to the dealership at the point of sale, and just get the amount knocked off the sales price right away.
Read Also: Nj State Income Tax Rate
What About Fuel Cell Cars
If you purchased a fuel cell car after January 1st, 2017, youre no longer able to claim Federal tax credits on these cars. Those who bought before were able to get a Federal tax credit of $4,000, in addition to credits ranging from $1,000 to $4,000. After that, it largely depended on the fuel efficiency rating of the vehicle.
Some states still have these programs. For example, California continues to offer a $5,000 rebate on the Toyota Mirai.
Are There Any State Programs I Can Take Advantage Of
Do remember that the Federal government is not the only body you can claim a tax credit from. There are dozens of programs run by states and even regions that can offer tax credits on electric cars and other vehicles that take advantage of alternative fuels.
Many states have multiple programs, but the problem is most of them apply only to businesses. A lot of credits are in the form of exemptions, such as inspections and fees. Some programs even offer access to carpool lanes and regional free or reduced parking.
Retail buyers do have some options, though. They can claim rebates, tax credits, and reductions on vehicle taxes by purchasing a qualifying vehicle.
California is one such state that does this. If you buy or lease a new car, like the Chevrolet Bolt or the Jaguar I-Pace, you can receive a rebate of $2,500. These programs are in addition to the Federal tax credit. So, Californians can shave off up to $10,000 off the cost of a new model.
On the other hand, Plug-in hybrids work a little differently because their batteries are smaller, and they burn some form of petroleum-based fuel most of the time. Cars like the Chevrolet Volt are only eligible for $1,500 rebates in California.
It would help if you looked up Plugin America for more information. They provide a map of the country and all the different plug-in car rebates, credits, and deductions. The Department of Energy also offers a similar resource.
Recommended Reading: How To Report Virtual Currency On Tax Return
New Federal Tax Credits In The Inflation Reduction Act
- Federal tax credit for EVs will remain at $7,500
- Timeline to qualify is extended a decade from January 2023 to December 2032
Revampedused vehicle credit
Us Democrats’ Plan Boosts Ev Tax Credit Eligibility To Pricier Trucks Suvs
WASHINGTON, Nov 3 – Democrats in the U.S. House of Representatives released an updated social spending and climate measure on Wednesday that expands a proposed $12,500 tax credit to pricier zero-emission vehicles, while lowering income limits for eligible buyers.
The updated bill, which could be voted on by the House in coming days and now includes paid family leave, revises pricing for vehicles eligible for the credit. Vans, sport utility vehicles and trucks with a manufacturer’s suggested retail price of up to $80,000 are eligible, while sedans remain at $55,000 as they were under the prior version.
The earlier version capped credits at $64,000 for vans, $69,000 for SUVs and $74,000 for pickup trucks. The prior EV tax credit plan was estimated to cost about $15.6 billion over 10 years.
The new proposal limits the full EV tax credit for individual taxpayers reporting adjusted gross incomes of $250,000 or $500,000 for joint filers, down from $400,000 for individual filers and $800,000 for joint filers.
The proposal would give a big boost to electric vehicles but faces opposition from Republicans, foreign automakers and foreign governments.
The House plan includes a $4,500 incentive for union-made vehicles and $500 for U.S.-made batteries. Vehicles would have to be made in the United States starting in 2027 to qualify for any of the $12,500 credit.
Recommended Reading: How I Get Tax Refund
Tax Credits For Evs: How They’ll Work And Who Can Get Them
Starting January 1, many Americans will qualify for a tax credit of up to $7,500 for buying an electric vehicle. The credit, part of changes enacted in the Inflation Reduction Act, is designed to spur EV sales and reduce greenhouse emissions.
But a complex web of requirements, including where vehicles and batteries must be manufactured to qualify, is casting doubt on whether anyone can receive the full $7,500 credit next year.
For at least the first two months of 2023, though, the full credit will likely be available to consumers who meet certain income and price limits. That’s thank to a delay in the Treasury Department’s rules for the tax breaks.
The new law also provides a smaller credit for people who buy a used EV.
For Vehicles Purchased Before 2022
If you missed claiming a credit for an electric vehicle purchased before 2022, you may be able to claim it by filing an amended return for the tax year when you took possession of the vehicle.
The credit for qualified 2-wheeled plug-in electric vehicles expired in 2022. If you bought a 2-wheeled vehicle in 2021, but placed it in service during 2022, you may still be able to claim the credit for 2022. If you bought it after 2021, you can’t claim the credit.
Also Check: Federal Tax Credit Heat Pump
How Does A Federal Tax Credit Work For My Ev
The idea in theory is quite simple, per the IRS You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle . The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.
With that said, you cannot simply go out and buy an electric vehicle and expect Uncle Sam to cut $7,500 off your taxes in April. In reality, the amount you qualify for is based on both your income tax as well as several specifications of the electric vehicle you purchase, including where its built. More on that below.
First, lets take a second to truly understand how the Federal EV tax credit currently works.
Are There Any Terms And Conditions Associated With The Ev Tax Credit
There are additional rules involving EV tax credits. As well as the rule on how much you can get back from the Federal government, there are a few other things you must take into account:
- The tax credit is awarded to the registered owner of the vehicle, which is why if youre leasing, you cant claim the credit. Instead, try to find a manufacturer that will factor the credit into your monthly repayments.
- You cant claim the credit if youre buying an electric vehicle to resell it. However, this is almost impossible to prove, so plenty of people have claimed the credit anyway.
- The vehicles primary purpose must be for driving within the US. In other words, if you live in Mexico, you cant just buy in the US and immediately take it to Mexico, at least not for the first year.
- Only cars built by qualified manufacturers are eligible for full credit.
- Battery electric vehicles and plug-in hybrids must have battery packs that possess at least 4 kWh of energy storage. They must also be capable of being recharged from an external power outlet.
- Manufacturers dont have to certify their vehicles to the IRS that they meet the credit requirements. You can generally rely on manufacturers and their word as to whether a car is eligible. This also applies to electric motorcycles, three-wheel EVs, and other similar vehicles.
- Please take note that the IRS is well within its rights to reject a request for a tax credit.
- The car must have a qualified plug-in electric drive motor.
Read Also: Take Home Pay After Tax
Electric Vehicle Tax Credit Faq
How does the EV tax credit work?
At the federal level, the tax credits for EVs operates as money back at the end of the fiscal year you purchased or leased your vehicles based on a number of factors.The awarded credit is up to $7,500 per vehicle, but how much you may get back will depend on the your annual income, whether you are filing with someone else like a spouse, and what electric vehicle you purchased.For example, if you purchased a Ford Mustang Mach-E and owed $3,500 in income tax this year, then that is the federal tax credit you would receive. If you owed $10,000 in federal income tax, then you could qualify for the full $7,500 credit.Its important to note that any unused portion of the $7,500 is not available as a refund, nor as a credit for next years taxes.You may also be able to receive money back right away as a point of sale credit, but those terms probably wont kick in until 2024 at the earliest.
What electric vehicles qualify for tax credits?
As things currently stand, there is a lot up in the air right now. The first table above details all of the electric vehicles that qualify under terms of the Inflation Reduction Act. However, battery guidance is still in limbo, and a slew of factors involving you as the customer also play a large role. We recommend starting at the top and reading through again.
What electric vehicles qualify for the new tax credits starting in 2023?Do hybrids qualify for tax credits?
How To Tell What Vehicles Apply For The Tax Credit
With all of these changes going into effect, finding an EV thats actually eligible for the federal tax credit can be a nightmare. We recommend doing your own research before looking into purchasing a car. If you want to see what vehicles are currently eligible for the federal tax credit, you can visit the IRSs official website. Weve also put together a list of the current vehicles eligible, which includes some PHEVs. The U.S. Department of Energy also has a useful site where you can get more information on final assembly points for EVs and explore state incentives.
Also Check: Short Term Capital Gains Tax Rate
Has The Push To Incentivize Electric Vehicle Ownership Undermined Itself
One of the main talking points of the Inflation Reduction Act is its impact on incentivizing people to buy an electric vehicle . This $369 billion bill, signed into law on Aug. 16, 2022, by President Biden, features a number of federal provisions aimed at tackling climate change, keeping EVs affordable, and boosting American industry.
Nevertheless, some of the provisions, however well intended, may have unintended results, with some industry commentators concerned that no current vehicles will qualify for the revised EV tax credit due to its strict price limits and the made-in-America requirements that go into effect in January 2023.