As any taxpayer hopefully knows, the federal government offers tax credits to encourage certain spending decisions. For example, the mortgage interest tax deduction encourages home ownership. Well, drivers who want to go green and purchase an electric vehicle are in luck as some vehicle purchases qualify for a tax credit of up to $7,500.
For vehicles purchased after December 31, 2009, the credit for plug-in vehicles begins at $2,500 for a battery with a capacity of at least 5 kilowatt-hours. Then, a car owner may claim may claim an additional $417 credit for each kilowatt-hour above 5, up to $7,500.
The credit will begin to phase out when 250,000 qualifying vehicles by a given manufacturer have been sold in the United States. This number is cumulative from the beginning of the credit.
In other words, the phase out is not fixed to a specific year. Once 250,000 qualifying Chevrolet vehicles are sold, the credit begins to phase out. For this reason, it’s very important to check with the dealer to see how many the manufacturer has sold. The credit is reduced to 50% of that amount for the two quarters following the time at which 250,000 have been sold, and then 25% for the quarter after that.
Chances are that you’re familiar with the more heavily publicized vehicles that qualify for the credit. But there are a number of other vehicles that qualify. Here’s a total list, per the IRS website:
- The CODA Sedan, manufactured by CODA Automotive Inc.
- The Chevrolet Volt, probably the best known of electric vehicles
- The second-most familiar electric vehicle, the Nissan Leaf
- The sportiest of electric cars, the Tesla Roadster
- The Think City Electric Vehicle
- Wheego Electric Cars’ LiFe Electric Vehicle
All of these vehicles qualify for the full $7,500 credit.
How much should this credit affect your car buying decision?
First things first, know whether your credit is the full $7,500, or if it will be reduced to $3,750 or $1,875.
Now that you have those numbers, compare them to your expected tax liability. If your expected tax bill for the year is above this number, your payment will be reduced by that amount. (This does not apply to those paying the alternate minimum tax.) The credit is non-refundable, meaning it won’t reduce your tax bill below zero. Should you be receiving a refund this year, this credit will be of no value.
Once you know how much your tax bill will be reduced by, the decision is all up to you. Even with the full credit, electric vehicles still cost a pretty penny.
The Volt has been well reviewed, even earning Motor Trends’ Car of the Year Award. And if you don’t frequently use its gas engine, you’ll spend little on fuel. That said, the fuel savings could take a long time to reap the financial benefits of savings, given the Volt’s premium price when compared to a typical economy car.
If you’re conscientious about your carbon footprint, reducing it might be a reward you’re willing to pay a premium for. The decision is all yours, but make sure you go in with all the facts.