Tax credits for electric vehicles: what to know before purchase

Electric vehicles are no longer a transportation option of interest primarily to climate-conscious car buyers. According to Experian, the electric vehicle market has grown significantly in recent years and is expected to see a 60 percent increase in registrations by early 2022.

At the same time, electric vehicle options continue to diversify and now include a wide range of styles and prices. Electric driving also offers a number of cost-saving advantages. In addition to the obvious benefit of saving on gasoline costs, electric car tax credits are available for those who purchase an electric vehicle. Depending on your state, you can save thousands of dollars by purchasing an electric vehicle.

Electric vehicles at a glance

The easiest way to understand how much the market has grown is to take a look at the latest information on electric vehicles.

• Six percent of new registrations in the first quarter of 2022 were electric vehicles.
• As of December 31, 2021, California had the highest percentage of electric vehicle registrations (about 39 percent).
• By the end of 2021, about 16.5 million electric vehicles will be on the road.
• California has the most charging stations, with 14,463, followed by New York, Florida and Texas (U.S. Department of Energy).

What is the electric vehicle tax credit?

The electric vehicle tax credit is a federal measure designed to encourage motorists to purchase an electric vehicle. It is not a check you receive in the mail after purchasing a vehicle, but a tax credit of up to $7,500. The credit applies to all electric and plug-in vehicles, but specific credit amounts are available on the U.S. Department of Energy's website, fueleconomy.org.

How does one qualify?

To qualify for the available incentives, the vehicle must meet certain specifications, including the following

• must have been purchased after December 31, 2009
• it must be an electric or hybrid vehicle
• must be a new vehicle, not a second-hand vehicle.
• must be a purchased vehicle, not a leased vehicle.
• have a maximum weight of 14,000 pounds
• have a battery capacity of at least four kilowatt-hours (kWh)
• use an external charging source.

It is also important to remember that simply purchasing the vehicle does not guarantee receiving the tax credit. Form 8936 must be filed with the IRS.

Are leased vehicles eligible for the electric vehicle tax credit?

The federal tax credit does not apply to people who lease an electric vehicle. The money goes to the lessor. However, it can reduce the monthly payment if the lessor decides to include this incentive in the lease agreement. Keep this in mind when negotiating to try to save money.

In some states, incentives apply regardless of lease or purchase.

Will the federal tax credit for electric vehicles still be available?

The tax credit is likely to continue indefinitely, in part because of increasing pressure for greener vehicles. But the vehicles available are constantly changing. This is due to the tax credit phase-out structure.

Once a given manufacturer reaches 200,000 electric vehicles sold in the United States, it is no longer eligible for the tax credit. Because of this rule, it is important to check whether the vehicle you intend to purchase is still eligible for the tax credit.

Can a household claim more than one electric vehicle tax credit?

If two members of the same household purchase an electric vehicle for themselves, they can claim the credit for their car separately. If the two people purchase an electric vehicle together, the credit can only be claimed once.

Income tax credit and electric vehicle tax credit

All drivers who submit the necessary information for an eligible vehicle using Form 8936 are eligible for the electric vehicle tax credit. However, the type and amount of income received may affect the tax credit granted.

State and local tax credits and incentives for electric vehicles

Unfortunately, not all states offer tax credits or incentives for electric vehicles. In fact, more than half the states in the country do not have a tax credit program for electric vehicles. Before you buy a charging station for your garage, find out how much you can save in your state.

Electric vehicle tax credits by brand

Here are some specific tax credits for electric vehicles, available by brand. Because each state is different, you need to take into account the advantages of one brand of vehicle over another.

Information gathered from the U.S. Department of Energy.

Deciding to purchase an electric vehicle

As with the purchase of a conventional gasoline vehicle, the decision to undertake the purchase of an electric vehicle requires consideration of a number of factors, such as cost, size, and practicality. But the purchase of an electric vehicle requires more thought. Here are some questions to ask yourself before deciding whether it is time to purchase an electric vehicle.

• Are there charging points available in my area? Before deciding to purchase an electric vehicle, it is important to check the availability of charging stations in your area. Use resources such as those offered by EVgo to explore options before purchasing.
• What is the range of the vehicle? You will need to verify that the range of your new vehicle matches your driving habits and planned trips.
• How much will it cost to maintain the vehicle? You will have to set aside money for maintenance checks, but you will not have to worry about the cost of oil changes or other pollution control devices.
• How much does EV insurance cost? The cost of insurance varies. That's why it's a good idea to do some research to find out which lending institution is best for your needs. Check out Empire Finance Pro's guide on electric vehicle insurance.
• Should I lease an electric vehicle? Consider leasing rather than buying if you can find favorable incentives from the manufacturer or if you prefer to change the vehicle every few years.
• Is it worth buying a new or used vehicle? As with leasing rather than buying, you need to consider the incentives available depending on the year of the vehicles available in your budget.

The future of tax credits for electric vehicles

Electric vehicles are still among the most expensive on the market, and until they become available, their price is likely to remain high. However, as manufacturers make green vehicles a priority and the government seeks to reward them, the tax credit will not disappear. If you have long wished to go green, now is the time to act.

Especially since in August 2021 President Biden issued an executive order stating that by 2030 half of all new vehicles sold in the United States must be electric. Although this is a very high percentage compared to what it is now, it is possible to take advantage of the current wave of electric car options and save even more money through an available tax credit.

More tax credits may be on the way. The Inflation Reduction Act of 2022 has passed both the House and Senate and will soon be signed into law. Early reports suggest that the new legislation will make more tax credits available for those who purchase electric vehicles.

Conclusion

If it is time to change your habits, consider buying an electric vehicle to help combat climate change and take advantage of tax credits and incentives for electric vehicles. Before choosing a particular electric vehicle, it is a good idea to do some research and check if tax credits are still available.

It is also important to check the availability of charging stations in your area and, depending on the intended use of the vehicle, confirm the battery life of the electric vehicle you are interested in.

As for financing and insurance, be sure to compare the rates and costs of an electric vehicle with those of a conventional vehicle.