How Do the Electric Vehicle Tax Credits Work

How Do the Electric Vehicle Tax Credits Work?

With significant financial implications for consumers looking to switch to electric transportation, electric vehicle tax credits represent a vital motivation. Thus, EV tax credits enough can lower the purchasing rates for each. Here, I will explain all the essential aspects of EV tax credits, including eligibility and procurement.

What are EV Tax Credits?

EV tax credits are an un-refundable federal government credit built to incentivize the purchase of electric cars. These credits reduce your tax liability but will not pay you a tax refund if the credit amount exceeds your tax liability. The main goal of tax credits is to promote electric car usage and help transition from traditional car production to cleaner, environmentally friendlier, renewable energy.

Electric Vehicle Tax Credits

How to Calculate Your EV Tax Savings?

Enter your information into an EV tax credit calculator to see how much you could save. Such calculators would typically request information like your vehicle make and model, how much you earn per year, and the state where you currently reside.

An example is the tax savings calculator on Drive Electric Vermont’s Electric Vehicle Incentive Calculator. Use this calculator to estimate the potential incentives available for the purchase or lease of an EV, including electric utility rebates in addition to Vermont state and federal incentives.

Electric Vermonts Electric Vehicle Incentive Calculator

Other EV tax calculators are available, such as FuelEconomy.gov’s EV tax credit calculator, e-AMRIT’s tax savings calculator, and the Department of Energy’s vehicle cost calculator. A tax-free savings calculator will help you determine how much an EV costs and if it makes sense in your case.

e-AMRIT's Tax Savings Calculator
FuelEconomy.gov's EV Tax Credit Calculator
Department of Energy's Vehicle Cost Calculator

What are the Tax Benefits of EV vehicles?

Electric vehicles are a clean mode of transport for the environment. It is one of the innovations of the 21st century. Moreover, EVs also offer different tax benefits that can help reduce the ultimately high costs of EV ownership. Tax benefits are designed to encourage the purchase and use of EVs. There are two main types of EV tax credits available such as New EV tax credit and Used EV tax credit but they are also categorized into the different aspects.

A. Federal Tax Credits for New EV Car

If you purchase a new Electric vehicle, you can get a tax credit of around $7,500 from the federal government. The new vehicle tax credit is available for all EVs, such as all-electric, plug-in hybrid, and fuel-cell electric vehicles. The $7,500 tax credit for a new EV is spread into two halves, namely $3,750 for specific battery component achievements and the same amount for critical mineral achievements. 

Eligibility criteria:

i) Vehicle requirements:

  • The vehicle must be an all-electric, plug-in hybrid, or fuel-cell electric vehicle.
  • The car must be put together and built in North America.
  • The Manufacturer’s suggested retail price (MSRP) must be below $80,000 for vans, SUVs, and trucks and below $55,000 for other vehicles.

ii) Income limits: 

The buyers’ adjusted gross income (AGI) must be below $150,000 for a single filer, $225,000 AGI for heads of households, and $300,000 AGI for joint filers. 

B. Federal Tax Credit for Used EVs:

Federal tax credits of up to $4,000 or 30% of the vehicle’s purchase for a used electric vehicle are available. Used electric vehicles have unique purchasing tax credit amounts.

Eligibility Criteria

1. Vehicle requirements: 

If you purchase a vehicle from a licensed dealer, then the advertised price is $25000 or less, and it must be at least two models old, respectively. The used electric vehicle must be an all-electric, plug-in hybrid, or fuel cell electric vehicle with a battery capacity of at least 7 kilowatt-hours.

2. Income Limits:

Married couples filing a joint tax return should have an adjusted gross income of less than $150,000. Heads of households should have filing statuses AGI of less than $112,500. The single-filing filers should have an AGI of less than $75,000.

C) Commercial EV Tax Credit:

Commercial entities are also eligible for tax benefits if they acquire electric vehicles. The credit is up to $7,500 for light-duty cars and $40,000 for heavy-duty vehicles such as EV delivery vans. The actual credit amount is based on the vehicle’s purchase price and type of vehicle.

Eligibility:

  • Your vehicle must have a gross weight rating of GVWR of not more than 14,000 pounds and a minimum 7-kilowatt battery capacity or above 14,000 pounds with a battery capacity of at least 15 kilowatt-hours.
  • The credit is 15% of the purchase price for the hybrid plug-in electric vehicle and 30% for a solo battery-powered vehicle or/and a fuel cell-powered vehicle.

D) State and Local EV Tax Credit:

Besides the federal tax credit, various states and local governments also offer tax incentives to those purchasing electric vehicles. The incentives are primarily given in cash rebates, tax credits, reduced car registration, and access to carpool lanes.

1. California:

If you purchase or lease a new electric vehicle, you could be eligible for up to $2,000 in rebates through the Clean Vehicle Rebate Project. Low-income families enjoy more incentives and can drive in the HOV lane.

2. New York:

The state also has a rebate plan for electric vehicle consumers of up to $2,000 administered by the New York State Energy Research and Development Authority. It gives extra benefits for home use purchases.

3. Colorado:

The state allows its residents to claim tax credits from $5,000 that can be used up to $2,500 in that fiscal year, and the rest carried over for three years.

Other Financial Benefits

1. Decreased Registration Fees and Exemptions for EVs

The registration fee for electric vehicles is less or exempted in some states. In Washington, for example, EV owners do not have to pay the state’s motor vehicle sales tax.

2. Access to Carpool Lanes

Drivers of electric vehicles can use the carpool lanes in many states, even if they are driving alone. It will save money and reduce your commuting stress at the same time.

What vehicles qualify for the 2024 EV tax credit?

Vehicles must meet specific manufacturing and price criteria, including the critical minerals requirement. The IRS provides a list of qualifying vehicles.

How do I transfer the EV tax credit to a dealer?

The process involves transferring the credit at the point of sale for an immediate discount. Buyers need to provide specific documentation to the dealer.

Are there state-specific EV incentives?

Yes, many states offer additional incentives for EV purchases, which can vary significantly. Check your state’s official website for details.

Conclusion

Electric vehicle tax credits, which aim to reduce the cost of EVs and drive the adoption of cleaner modes of transport, are a cornerstone of this excellent news story. With eligibility standards and instructions on redeeming these credits, buyers may take advantage of some of the most financially lucrative benefits. Capitalizing on federal and state tax credits will be vital in invoking the shift to clean vehicles as the EV sector matures and expands.

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