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Tax Credit About To Expire On New Teslas

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The EV maker's high sales volumes are to blame.

If you want to purchase a Tesla Model S, Model X, or Model 3, the time to do it is now. In under five weeks, the federal tax credit for the marque's all-electric vehicles will be expiring. These tax credits were originally worth up to $7,500, but only for the first 200,000 models that an EV automaker sells. As we reported last year, Tesla had already surpassed this milestone and the incentive was halved. Right now, the gradually declining tax credit is worth just $1,875, but only if new owners place their orders and take delivery of their vehicles by December 31, 2019, after which the incentive falls away completely.

Tesla
2017-2019 Tesla Model 3 Side View Driving Tesla
2017-2019 Tesla Model 3 Key Card Tesla

Since 2010, tax credits have been available for electrified vehicles. As Tesla has nearly depleted its tax credit allocation - and other manufacturers like General Motors get close to the same - a proposal to expand the $7,500 electric vehicle tax credit by another 400,000 vehicles per manufacturer has been put forward, but remains hotly debated. For environmentalists, the answer is simple: the incentive encourages more buyers to embrace pricey EVs, thereby reducing the effects of climate change.

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Tesla
2017-2019 Tesla Model 3 Side View Driving Tesla
2017-2019 Tesla Model 3 Infotainment System Tesla

There are a number of rules in place regarding the existing tax credit for EVs. The electric vehicle needs to have a battery of at least four kilowatt-hours capacity and recharging by an external electric source must be possible. The full credit of $7,500 (no longer applicable to Teslas) also requires a 16-kWh battery at the least - EVs with 4-16 kWh only get partial credit. Of course, it's a tax credit - not a refund - so you only qualify for the $1,875 credit if you owe at least that amount in taxes.

Tesla
Tesla
Tesla

For Tesla, the challenge over the next few weeks will be to deliver new models on time should there be a surge in sales as buyers take advantage of the tax credit before its expiry at the end of the year. From 2020, it also means that rivals like Porsche with its new Taycan and Audi - both newer to the EV party and having sold far fewer electric cars than Tesla - will have the edge as their models will still qualify for the full $7,500 tax credit. Turns out that getting a headstart in the market isn't always a good thing after all.

2017-2019 Tesla Model 3 Front Angle View Tesla

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2017-2019 Tesla Model 3 Infotainment System
2017-2019 Tesla Model 3 Key Card
2017-2019 Tesla Model 3 Side View Driving
2017-2019 Tesla Model 3 Front Angle View
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