Electric vehicle tax credits: What to know before you buy

Electric vehicle tax credits: What to know before you buy

Electric vehicles are no longer a transportation option that appeals predominantly to climate-conscious car buyers. The EV market has experienced dramatic growth over the past few years, with registrations increasing by 60 percent through the first few months of 2022, according to Experian.

At the same time, the electric vehicle options continue to diversify and now include a wide selection of styles and price points. Driving electric also comes with many money saving perks. Besides the obvious — saving on the cost of gas — there are electric car tax credits provided to those who purchase an electric vehicle. Depending on your home state, owning an electric vehicle can save you thousands.

EV fast facts

The easiest way to see how much the market has grown is to look at recent EV information.

  • 4.6 percent of new registrations as of the first quarter of 2022 were electric vehicles (Automotive News). 
  • California has the highest percentage of new EV registrations as of December 31, 2021, with approximately 39 percent (U.S. Department of Energy). 
  • By the end of 2021 there were about 16.5 million EVs on the road. (International Energy Agency). 
  • The state of California has the highest number of charging stations with 14,463, followed by New York, Florida and Texas (U.S. Department of Energy).

What is the EV tax credit?

The EV tax credit is a federal incentive built to encourage drivers to purchase an electric vehicle. This incentive is not a check you receive in the mail following a vehicle purchase, but rather a tax credit worth up to $7,500 that you become eligible for. This credit applies to all electric and plug-in vehicles, but specific credit amounts can be found via the U.S. Department of Energy’s website, fueleconomy.org

How to qualify

To qualify for available incentives, your vehicle must meet certain specifications, including:

  • Have been purchased after December 31, 2009. 
  • Must be an electric or hybrid vehicle. 
  • Must be a new vehicle, not used. 
  • Must be a purchased vehicle, not leased 
  • Have a weight rating of up to 14,000 pounds. 
  • Hold a battery capacity of at least four kilowatt hours (kWh). 
  • Use an external plug-in recharge source. 

It is also important to remember that purchasing the vehicle alone does not ensure that you get the tax credit. You must file Form 8936 with the IRS. 

Do leased vehicles qualify for an EV tax credit?

The federal tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. But this still can lower a monthly payment — if the lessor chooses to factor that incentive into your lease agreement. Mention this during negotiation to try and save money.

Certain states have incentives that apply regardless of whether you are leasing or buying.

Will the federal EV tax credit always be around?

It is likely that the credit will be around indefinitely, especially with increased pushes for more climate-aware vehicles. But the available vehicles are constantly shifting. This is due to the phase-out structure of tax credits. 

When a particular manufacturer reaches 200,000 electric vehicles sold for use in the United States, those vehicles are no longer eligible for credits. Because of this rule, it’s important to check if the vehicle you intend to purchase is still available for credit. 

Can a household receive multiple EV tax credits? 

If two members of the same household purchase electric vehicles for themselves, they will be able to separately claim the credit for their individual cars. If the two buy an EV together, the credit may only be claimed once.

Income and the EV tax credit

Any driver who submits the necessary information for a qualifying vehicle using Form 8936 may be eligible for an EV tax credit. But the type and amount of income that you receive can affect what tax credits you receive.

State and local EV tax credits and incentives

Unfortunately, not every state offers EV tax credits and incentives. In fact, more than half of the states in the country do not have an EV tax credit program. So, before you set out to buy a charging station for your garage, determine how much you can save in your home state.

EV tax credits by vehicle brand

Here are some specific EV tax credits offered by vehicle brands. Just as each state differs, consider the benefits from one vehicle brand compared to another.

Vehicle brand  Available credit 
Audi $4,502 to $7,500
BMW $3,793 to $7,500
Chevrolet No longer eligible
Fiat/Chrysler $7,500
Ford $4,007 to $7,500
Honda $3,626 to $7,500
Hyundai $4,543 to $7,500
Jaguar/Land Rover $6,295 to $7,500
Kia $4,543 to $7,500
Mercedes $3,501 to $7,500
Mitsubishi $5,836 to $7,500
Nissan $7,500
Porsche $3,667 to $7,500
Subaru $4,502 to $7,500
Tesla No longer eligible
Toyota $2,500 to $7,500
Volkswagen $7,500
Volvo $4,585 to $7,500

Information gathered from U.S Department of Energy

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