Navigating the Electric Vehicle Federal Tax Credit

Car owners buy electric vehicles for many reasons, but all eligible car owners get the benefit of claiming the electric vehicle tax credit on their federal tax return, providing certain conditions are met. Learn how to qualify for the electric vehicle federal tax credit and how this credit can positively impact your personal taxes.

Breakdown of the Tax Credit for Qualified Plug-in Electric Drive Motor Vehicles

Internal Revenue Code Section 30D provides a credit to owners of qualified new electric motor vehicles, including passenger vehicles and light trucks. The credit is equal to between $2,500 and $7,500. The amount of credit allowed for a vehicle calculates as follows: $2,500 plus $417 for a vehicle that draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, plus an additional $417 for each kilowatt hour of battery capacity over 5 kilowatt hours.

You claim the Section 30D tax credit on the tax return for the year you purchase the vehicle. So, if you bought a qualifying vehicle in 2020, this credit is deductible on your 2020 personal tax return. Note, though, that because the credit is nonrefundable, you cannot use the credit to generate a tax refund.

How to Qualify to Claim the Credit

Your vehicle must meet the following requirements for you to claim the electric vehicle credit on your tax return. The vehicle:

  • Must have at least four wheels
  • Must be manufactured primarily for use on public roadways
  • Is considered a motor vehicle under Title II of the Clean Air Act
  • Has a gross vehicle weight rating (GVWR) of less than 14,000 pounds
  • Is propelled to a significant extent by an electric motor that draws electricity from a battery with a capacity of at least 4 kilowatt hours and can be recharged from an external source of electricity
  • Is used primarily in the United States

Additionally, you must be the vehicle’s original user and have acquired the vehicle to use personally. In other words, you cannot have purchased the vehicle for resale.

Examples of Vehicles Eligible for the Credit

The Internal Revenue Service (IRS) maintains an index of manufacturers with vehicles eligible for the credit. For example, the 2020 Audi e-tron Sportback qualifies for the full $7,500 credit. The 2020 Mitsubishi Outlander PHEV, however, qualifies only for $5,836 in tax credit.

The Credit’s Phase-Out

Under current tax code, the credit phases out for a manufacturer’s vehicles when that manufacturer reaches a threshold of 200,000 qualifying vehicles sold for use in the United States since 2010. As of early 2021, only two manufacturers have exceeded this figure—you cannot take this credit for Tesla or GM electric models.

Need additional guidance on using the electric vehicle federal tax credit? Contact Insogna CPA for help with this electric vehicle credit and for advice on how to further save on your personal taxes.

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