Electric Car Tax Credits and Rebates

Electric Car Tax Credits and Rebates

There are thousands of dollars of electric car rebates and tax credits. In addition, there are many other electric vehicles (EV) perks available such as carpool access lane stickers, charger equipment Federal tax credits, cheaper electric utility rates, sales tax exemptions, and more. These incentives are offered by the Federal and State governments, local municipalities, utility companies, and air districts.

If you are thinking about purchasing an EV or have recently purchased one, it is very important to know which incentives apply as there are certain timing requirements. In addition, depending on your location or EV only certain incentives apply. Therefore, it is best to be researched prior to purchasing the electric car so you understand completely how much electric car rebates and tax credits you can claim. 

Federal Electric Vehicle Tax Credit:

The Federal Electric Vehicle Tax Credit allows individuals to take off up to $7,500 on next year’s tax return. It is important to note that this is a tax credit, which means it only reduces one’s tax liability. Let’s say you only owed $5,000 in taxes and the particular EV is eligible for the full $7,500. You would only be able to claim $5,000 from the EV tax credit. The unused portion of $2,500 will not be applied to the tax return nor can it be carried forward to next year’s return. 

Some electric cars are eligible for the full $7,500 while others are less. In general, all BEVs (Battery Electric Vehicles or “all-electric”) are eligible for the full tax credit, while PHEVs (plug-in hybrids) are only eligible for a portion. Some larger battery PHEVs, like the Honda Clarity, are eligible for the full amount. Again, research is important. 

So who can claim the tax credit? Unfortunately, only owners can claim the credit. Individuals who lease cannot. Also, the tax credit is only available to the purchase of a new electric car. Used electric cars are not eligible.  

Lastly, the federal government has set a limit to the manufacturer who has sold 200,000 EVs. Once the limit is reached, the tax credit slowly decreases until it drops to zero.

To date, only Tesla and GM have reached that threshold. This means vehicles made by Tesla and GM are not eligible for the tax credit anymore. Head over to EVAdoption to see how close the other manufacturers are.

Whether you are currently window shopping or currently going through with the purchase, it is highly recommended to seek the advice of a tax professional. 

Various Electric Car Rebates:

In addition to the federal tax credit, there are many, many electric car rebates. States, local municipalities, air districts, and electric utility companies may offer rebates to those who purchase or lease an EV. 

There are tons of rebates out there. For example, when I purchased my Chevy Volt, I claimed $1,500 from the State of California and $500 from the electric utility. This was in addition to the $7,500 tax credit. Altogether, I was able to claim a total of $9,500 of incentives for purchasing my EV!

Each of the rebate programs is specific to the region where the owner registers the vehicle. Furthermore, each of the rebate programs has different requirements such as varying rebate amounts depending on the vehicle, maximum income limits, rebate timing, new or used eligibility, and more. 

Other Electric Car Incentives:

On top of the tax credit and various rebates, there are other incentives available for driving an electric car. These incentives, like the rebates, vary depending on your location, income, electric car, and tax situation. 

For example, California offers a sticker for the Carpool Lane sticker. Vehicles with the Carpool Lane sticker do not need two or more passengers to drive in the HOV (High Occupancy Vehicle) lane. Washington offers a sales tax exemption to electric cars up to $3,500. Massachusetts offers a tax credit up to $1,000 for the EV charger purchase. The list goes on and on. 

How to Find Eligible Rebates and Other Incentives:

Thankfully, the website Plugstar has gathered all the available rebates and other incentives specifically available to you. Simply enter your zip code to find all the available electric car rebates and tax credits. 

Keep in mind program exclusions may apply such as income limits or excluded vehicles. Research the specific program to ensure your specific situation is eligible. 

Closing Thoughts:

As stated previously, I was able to claim nearly $10,000 for the purchase of my EV. While electric cars today are still a bit of a premium over comparable ICE cars, these incentives help reduce that price gap. Couple the electric car rebates and tax credits with an EV’s low cost of operation and the EV is the cheaper option. 

Over the years, I have seen some individuals not know of certain EV rebates they were eligible for. The reason for this is because there are so many different programs with several rules it can create a barrier of entry. 

Like the EV tax credit, most rebates and other incentives arrive after the purchase of the vehicle. Therefore, the cash or loan needed to purchase the car must be made at the pre-incentive cost. Most rebates arrive a few weeks after the purchase while the tax credit is applied during tax season.

In other words, if the electric car costs $35,000 but is eligible for $10,000 worth of tax credits and rebates, the cash or loan must be for $35,000 rather than the post-incentive vehicle cost of $25,000. If you are looking into using a loan, this must be considered as the interest will be based on the higher principal amount. 

Good luck with your EV search!