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Saturday 19 August 2017
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Electric Vehicles and Tax Credits

Electric Vehicles and Tax Credits

As we know, government programs tend to be extremely confusing. This is true of the tax credits offered with the purchase of all-electric vehicles.

Initially, there were a limited number of tax credits available for hybrid owners, but those have long sense gone by the wayside, except for some plug-in hybrids. With gas prices currently approaching $2.50 per gallon in many places, this is the time to get an electric vehicle, while demand is low. However, if you plan to use the $7500 federal tax credit as part of your decision-making process, there are things you need to know.

First, the vehicle must be brand new, made by an approved automobile manufacturer. Used electric vehicles do not qualify, nor do vehicles that have been converted to electric. You are safe buying a mainstream electric vehicle, including a Tesla if you wish.

If you plan to lease an electric vehicle, be aware that the lease company usually claims the federal tax credit, since it is the legal owner of the car. Some lease companies, including the finance arms of many manufacturers, use the credit to lower the monthly lease payment, however if that happens, you will not be eligible to claim the $7500 credit on your taxes.

One misconception of the tax credit is that everyone qualifies for it. Not true. You must use the tax credit in the same year you purchase the electric vehicle. While that is not a big deal, this is: if you have a tax liability of less than $7500, you can only claim the amount of the tax liability. In other words, you cannot use the electric car credit to receive a refund. The best you can do is zero out your liability for that year. If you typically get a refund on your taxes, the federal tax credit will do you no good.

Know too that the $7500 federal tax credit does not go on forever. Each electric vehicle manufacturer can offer the credit to 200,000 new owners. Given the disappointing sales numbers for electric vehicles, odds are good that it will be a couple of years before the credit becomes extinct.

It is always a good idea to check with your tax preparer to make sure an electric vehicle is going to help you when it comes to tax time. There are some plug-in hybrids that have lessor amounts of credit. For instance, Ford C-Max Energi and Fusion Energi have $4007 in credits, Honda Accord plug-in has $3626, Prius plug-in has $2500, and Porsche Panamera S E-hybrid has $4751. Given these varying amounts, it is a good idea to do your homework.

Besides the federal tax credits, there are good reasons for some people to get electric vehicles. In many areas, especially California, electrics and hybrids are given permission to use high-occupancy vehicle lanes with only one person in the car.

I liken electric cars to old cell phones. I bought my first cell phone in 1985. It had horrible battery life, must have weighed 25 pounds, and I paid $2500 for it. We are now seeing battery life getting better, and prices dropping. Nissan has drastically lowered the price of the Leaf since it came out, and just last week, Ford dropped $6000 off the price of the 2015 Focus Electric.

For people who can commute within the range of the batteries, you will never visit a gas station again. As chargers become more available in workplaces, malls, and restaurants, we are likely to see an increase in sales of electrics. Until then, consider all the factors.

– Jerry Reynolds




2 thoughts on “Electric Vehicles and Tax Credits

  1. Richard Luciano

    You state, “If you typically get a refund on your taxes, the federal tax credit will do you no good.” This is wrong! Getting a refund only indicates that your liability is less than withholding and any estimated payments. You can pay a million dollars in taxes and still get a refund every year. Getting a refund has NOTHING to do with your tax liability. With the EV credit, you can get all of your federal tax withholding back if it was $7500 or less.

    Reply

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