Everything you need to know about cars that qualify for tax credits in the United States
One of the benefits of buying a hybrid or electric vehicle is the tax credit - but the topic is quite convoluted and confusing for many. It's not quite as simple as it sounds initially, and there are many factors that come into play in determining the exact amount you qualify for and how you benefit from it. The tax credit for buying an electric car varies depending on the type of car, the size of its battery, and even the state you reside in. In addition, there is a list of prerequisites and regulations that need to be met before you are able to benefit.
Before we delve into the world of hybrid, EV, and PHEV tax credit, it is worth noting that tax credits for hybridized vehicles will not continue indefinitely. Once a manufacturer has sold 200,000 qualifying models for use in the US (as of the end of 2009), tax credit no longer applies. The idea behind tax credits has always been to promote sales of greeners vehicles, and as numbers continue to rise, these incentives will fall away.
First off, tax credit is determined by the type of electric vehicle and by the size of the battery. Some plug-in hybrid models qualify for a much lower credit amount than EVs do, for example. State and even local incentives may also apply.
Secondly, while most people assume that the $7,500 tax credit figure that is most often spoken about means everyone gets a direct $7,500 rebate, the reality is very different. The key lies in the words 'up to' which are used in conjunction with this figure. Depending on what your income tax bill is at the end of the year, you will only have the benefit of a full $7,500 if you owe that much or more. If you owe only $3,000, for example, that's all you'll get. And, whatever remains simply falls away - you can't make use of it to benefit you in the following tax year.
Additionally, electric car tax credit for leased vehicles is a different cup of tea. Since the manufacturer or dealer where you lease the car from remains the owner of the vehicle, the tax credit benefits them, and not you. They may build this into your contract to lower monthly premiums, but this isn't a requirement at all. Find out more about whether leasing or buying an electric car is right for you, here.
As we've touched on, a flat rate of $7,500 doesn't apply in all cases, and before you assume the car you're driving means you'll get a rebate, you should familiarize yourself with the US rules and regulations surrounding this.
Vehicles only qualify for tax credits if they meet the following requirements:
Additionally, the following rules need to be adhered to for you to qualify for tax credits:
Now that you know what the requirements are, you may be wondering which vehicles qualify and for how much. A complete list is curated by the US Department of Energy here, but the IRS also maintains a listing by manufacturer.
Here are just some of the all-electric and plug-in hybrid vehicles that qualify for the new electric car tax credit for 2022:
|Audi e-tron GT||EV||$7,500|
|Ford Mustang Mach-E||EV||$7,500|
|Hyundai Kona Electric||EV||$7,500|
|Kia Niro EV||EV||$7,500|
|Volvo XC40 Recharge||EV||$7,500|
|Ford Escape Plug-In Hybrid||PHEV||$6,843|
|Land Rover Range Rover PHEV||PHEV||$6,295|
|BMW X3 xDrive30e||PHEV||$5,836|
|Hyundai Ioniq Plug-In Hybrid||PHEV||$4,543|
|Toyota Prius Prime||PHEV||$4,502|
With the rapidly increasing EV market, government rebates and benefits will soon be phased out. As EV technology becomes more affordable with the growing market, economies of scale also improve. Once manufacturers have sold 200,000 eligible vehicles, tax credit begins to phase out. Having sold over 200,000 vehicles, Tesla vehicles no longer qualify for any electric car tax credit for 2022. GM products also no longer benefit from the incentives of the federal program. However, recent legislation in America could see this raised to 600,000 units - although this wouldn't affect Tesla.
Federal bills and incentives for electric cars remain the same throughout the USA but are typically met with more specific EV tax credit bills and incentives within each state.
If you are wondering if 'surplus credit' can be transferred to a subsequent tax year, the answer is no: you only receive the electric car tax credits for the year in which you purchase the eligible vehicle. Additionally, federal EV tax credits cannot be transferred from a first buyer to a second (ie: if you are purchasing a second-hand or pre-owned vehicle). And, if you lease an electric vehicle, the tax credit will go to the original registered owner of the car, which is the manufacturer or dealership you are leasing from.
Yes, hydrogen fuel cell cars do qualify for tax credits and incentives in some states, but the laws and incentives are a little different from what applies to electric and hybrid vehicles. You can read more about how hydrogen cars work, here.