Electric vehicle tax credits: what you need to know before you buy

Electric vehicles are no longer a transportation option of interest primarily to climate-conscious car buyers. According to Experian, the electric vehicle market has grown significantly in recent years, with registrations expected to increase by 60 percent by early 2022.

At the same time, electric vehicle options continue to diversify and now include a wide range of styles and prices. Electric driving also offers many cost-saving advantages. In addition to the obvious benefit of saving on gasoline costs, electric car tax credits are available for those who purchase an electric vehicle. Depending on your state, you can save thousands of dollars by purchasing an electric vehicle.

Electric vehicles at a glance

The easiest way to understand how much the market has grown is to take a look at the latest information on electric vehicles.

• Six percent of new registrations in the first quarter of 2022 are electric vehicles.
• As of December 31, 2021, California has the highest percentage of electric vehicle registrations (about 39 percent).
• By the end of 2021, about 16.5 million electric vehicles will be on the road.
• The state of California has the largest number of charging stations, with 14,463, followed by New York, Florida and Texas (U.S. Department of Energy).

What is the electric vehicle tax credit?

The electric vehicle tax credit is a federal measure designed to encourage motorists to purchase an electric vehicle. It is not a check you receive in the mail after purchasing a vehicle, but a tax credit that can be claimed up to $7,500. The credit applies to all electric and plug-in vehicles, but specific credit amounts are available on the U.S. Department of Energy's website, fueleconomy.org.

How does one qualify?

To qualify for the available incentives, the vehicle must meet certain specifications, including the following

• must have been purchased after December 31, 2009
• it must be an electric or hybrid vehicle
• must be a new vehicle and not a second-hand vehicle.
• It must be a purchased vehicle and not a leased vehicle.
• Must have a maximum weight of 14,000 pounds
• Have a battery capacity of at least four kilowatt hours (kWh)
• use an external charging source.

It is also important to remember that just buying the vehicle does not guarantee the tax credit. It is necessary to file Form 8936 with the IRS.

Are leased vehicles eligible for the electric vehicle tax credit?

The federal tax credit does not apply to people who lease an electric vehicle. The money goes to the lessor. However, it can reduce the monthly payment if the lessor decides to include this incentive in the lease agreement. Keep this in mind during negotiations to try to save money.

In some states, incentives apply regardless of lease or purchase.

Will the federal tax credit for electric vehicles still be available?

The tax credit is likely to continue indefinitely, in part because of increasing pressure for greener vehicles. But the vehicles available are constantly changing. This is due to the tax credit phase-out structure.

Once a given manufacturer reaches 200,000 electric vehicles sold in the United States, it is no longer eligible for the tax credit. Because of this rule, it is important to check whether the vehicle you intend to purchase is still available for the tax credit.

Can a household claim more than one electric vehicle tax credit?

If two members of the same household purchase an electric vehicle for themselves, they can claim the credit for their individual cars separately. If the two people purchase an electric vehicle together, the credit can only be claimed once.

Income and tax credit for electric vehicles.

All drivers who submit the necessary information for an eligible vehicle using Form 8936 are eligible for the electric vehicle tax credit. However, the type and amount of income received may affect the tax credits awarded.

State and local tax credits and incentives for electric vehicles.

Unfortunately, not all states offer tax credits or incentives for electric vehicles. In fact, more than half the states in the country do not have a tax credit program for electric vehicles. Before you buy a charging station for your garage, find out how much you can save in your state.

Electric vehicle tax credits by brand

Here are some specific electric vehicle tax credits available by brand. Each state is different, so consider the benefits of one brand of vehicle over another.

Information gathered from the U.S. Department of Energy.

Deciding to purchase an electric vehicle

Just like buying a traditional gasoline vehicle, the decision to dive into the world of buying an electric vehicle requires consideration of several factors, such as cost, size, and practicality. But buying an electric vehicle requires further thought. Here are some questions to ask yourself before deciding whether it is time to purchase an electric vehicle.

• Are charging stations available in my area? Before deciding to purchase an electric vehicle, it is important to check for charging stations in your area. Use resources such as those offered by EVgo to explore options before purchasing.
• What is the range of the vehicle? You will need to check that the range of your new vehicle matches your driving habits and planned trips.
• What are the expected maintenance costs for the vehicle? You will have to set aside money for maintenance checks, but you will not have to worry about the cost of oil changes or other pollution control devices.
• How much does EV insurance cost? The cost of EV insurance varies. So it is best to do some research to determine which lending institution best suits your needs. Check out Empire Finance Pro's guide on electric vehicle insurance.
• Should I lease an electric vehicle? Consider leasing rather than buying if you can find favorable incentives from the manufacturer or if you prefer to change the vehicle every few years.
• Is it worth buying a new or used vehicle? As with leasing rather than buying, consider the incentives available depending on the year of the vehicles available in your budget.

The future of electric vehicle tax credits.

Electric vehicles are still among the most expensive on the market, and until more are available, their price is likely to remain high. However, as manufacturers make green vehicles a priority and the government seeks to reward them, the tax credit will not disappear. If you have been wanting to go green for a while, now is the time to act.

This is especially true since President Biden issued an executive order in August 2021 stating that half of all new vehicles sold in the United States must be electric by 2030. Although this is a very high percentage compared to today, it is possible to take advantage of the current wave of electric car options and save even more money through an available tax credit.

More tax credits may be on the way. The Inflation Reduction Act of 2022 has passed both the House of Representatives and the Senate and will soon be signed into law. Early reports suggest that the new legislation will make additional tax credits available for those who purchase electric vehicles.

Conclusion.

If the time has come to change your ways, consider buying an electric vehicle to help fight climate change and take advantage of tax credits and incentives for electric vehicles. Before choosing a particular electric vehicle, it is good to do some research and check if tax credits are still available.

It is also important to check the availability of charging stations in your area and, depending on the intended use of the vehicle, confirm the battery life of the electric vehicle you are interested in.

Regarding financing and insurance, be sure to compare the rates and costs of an electric vehicle with those of a conventional vehicle.

Written by

Destiny Richardson

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Destiny Richardson is a seasoned professional with 10+ years of global experience in the field of Investment Banking, Mergers and Acquisitions, and CFO. My area of expertise is Finance, Financial modelling, Fundraising, Investment Thesis, Mergers & Acquisitions, Market Research & Strategy work for startups as well as mid size companies. Destiny Richardson is a qualified Chartered Accountant (equivalent to CPA) and a graduate in commerce also hold Masters degree - MBA from leading universities in Asia / Europe. Due to my nature of work and love for travelling, I have been to more than 20+ countries.

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