Top 15 FAQs on the Income Tax Credit for Plug-in Vehicles

2 years ago by Barry Brents 10

US Federal EV Credit Program - Worth Up To $7,500 Per Qualifying Vehicle

US Federal EV Credit Program – Worth Up To $7,500 Per Qualifying Vehicle

U.S. sales of battery electric vehicles (BEVs) have grown exponentially since BEVs vehicles were introduced in the market in 2010. This growth is attributable to multiple factors: a greater selection of vehicle models, a increasingly-developed charging infrastructure, and an expansive list of state and federal government incentives.

Qualifying Plug-In Sales In America Since December 2010

Qualifying Plug-In Sales In America Since December 2010

This article focuses on the most significant of those incentives, the U.S. income tax credit for New Qualified Plug-in Electric Drive Motor Vehicles (the ‘New Plug-in Tax Credit’).

Despite the significant role that the New Plug-in Tax Credit has played in accelerating development of the BEV market, many consumers still don’t take full advantage of the credit because they are unaware of it, they don’t owe enough tax to use it, or they simply don’t understand the credit.

To make the New Plug-in Tax Credit more accessible to consumers who are unfamiliar with how the tax credit works, this article addresses the most common questions that consumers have raised about the New Plug-in Tax Credit.

Editor’s Note: Our thanks to Mr. Brents for covering all the ins and outs of the plug-in tax credit.  Barry is a tax attorney who researches and writes about incentives for plug-in vehicles.  He also maintains a website called PlugIncentives.com, where if you are a Californian resident you can learn a lot more about incentives in your area.

 

When was the New Plug-in Tax Credit created?

The New Qualified Plug-in Electric Drive Motor Vehicle Credit is provided in Internal Revenue Code section 30D and was originally enacted in the Energy Improvement and Extension Act of 2008.

When does the New Plug-in Tax Credit expire?

The New Plug-In Tax Credit doesn’t have an expiration date. Purchasers of qualified vehicles can continue to claim the credit until the manufacturer has sold 200,000 qualified vehicles for use in the United States. Once a manufacturer’s U.S. sales reach 200,000 qualified vehicles, the Credit for all qualified vehicles produced by the manufacturer will begin to phase-out over a one year period.

The Chevrolet Volt (16.5 kWh battery) Qualifies For The Full $7,500

The Chevrolet Volt (16.5 kWh battery) Is Eligible For The Full $7,500 Credit

Are any vehicle manufacturers close to the 200,000 threshold?

Informal sales figures through February 2014 show that U.S. sales by the top selling BEV manufacturer are around 57,000.  Also, as new manufacturers enter the market with credit-eligible vehicles, it is possible that the New Plug-in Tax Credit, if it retains its current form could remain a fixture in the market for years to come.

What amount of credit can be claimed on the purchase of a new vehicle?

It depends on the vehicle’s battery size and the purchaser’s tax liability.  The amount of available will be credit different for each vehicle and could be as low as $2,500 and as high as $7,500.  The vehicle manufacturer must first certify the amount of credit that a purchaser of the vehicle would be eligible to receive, based on the capacity of the vehicle’s battery.  Consumers can check the IRS website for the maximum allowable credit amount for a particular vehicle make and model.

Even if a vehicle qualifies for the maximum amount of New Plug-in Tax Credit, the purchaser still may not be able to claim the full amount of available credit.  Limitations on the use of the credit might prevent the taxpayer from claiming the full amount of available credit (discussed below).

The Nissan LEAF (24 kWh battery) Qualifies For The Full $7,500

The Nissan LEAF (24 kWh battery) Qualifies For The Full $7,500

Can I claim the New Plug-in Tax Credit if I lease a qualified vehicle?

The Plug-in Tax Credit can only be claimed by purchasers of a new qualified vehicle who use the vehicle primarily in the U.S.  If you lease a car at a dealership the leasing company can claim the credit since it is considered to be the purchaser of the vehicle.

Will I be ineligible to claim the credit if my income is too high?

There is no maximum income limitation for claiming the New Plug-in Tax Credit.  As long as a taxpayer otherwise qualifies for the credit and has a sufficient tax liability for the year, the taxpayer can claim the New Plug-in Tax Credit to reduce that tax liability down to zero (but not below zero). After the taxpayer has reduced his or her tax liability to zero, the taxpayer will lose any remaining excess New Plug-in Tax Credit, assuming the vehicle was used solely for personal driving.

The 2014 Ford Fusion And Cmax Energi (7.6 kWh battery)  Both Qualify For A $4,007 Credit, While The Focus Electric (23 kWh) Gets $7,500

The 2014 Ford Fusion And Cmax Energi (7.6 kWh battery) Both Qualify For A $4,007 Credit, While The Focus Electric (23 kWh) Gets $7,500

If I ordered a vehicle in 2013 but it wasn’t delivered until 2014, can I claim the credit when I file my 2013 tax return?

Taxpayers can only claim this credit in the year when the vehicle is placed in service.  The IRS has issued guidance defining ‘placed in service’ as the year in which a taxpayer takes delivery of the vehicle).

What IRS Form do I use to claim the New Plug-in Tax Credit?

The credit is claimed by filling out IRS Form 8936 and attaching it to a completed federal income tax return.

 

Both The Current Tesla Model S And Future Model X (60 kWh & 85 kWh battery) Qualify For The Full $7,500 Federal Credit

Both The Current Tesla Model S And Future Model X (60 kWh & 85 kWh battery) Qualify For The Full $7,500 Federal Credit

What does it mean that a $7,500 credit is allowable for vehicle?  Why wouldn’t I get the full amount?

A manufacturer has to certify to the IRS that a particular make, model and model year meets the requirements for the New Plug-in Tax Credit and certify the maximum amount of credit allowable based on that vehicle’s battery capacity.  However, although a vehicle qualifies for a certain amount of credit, there is no guarantee the taxpayer will be able to claim the full amount.  The New Plug-in Tax Credit is non-refundable so the purchaser can only claim it to the extent he or she has a tax liability that year.  For example, if a taxpayer purchases a vehicle for which $7,500 of credit is allowable, but the taxpayer only has a tax liability of $3,000 then he or she won’t be able to use $4,500 of the allowable credit.

Do I get a refund of my unused credit?

The New Plug-in Tax Credit is a non-refundable credit meaning any amount of unused credit won’t be refunded to the taxpayer.

So You Are The Person Who Bought A Honda Accord PHV?  Well, You Get $3,626 From The Feds Thanks To A 6.7 kWh Battery

So You Are The Person Who Bought A Honda Accord PHV? Well, You Get $3,626 From The Feds Thanks To A 6.7 kWh Battery

How do I calculate the credit if I used the vehicle in my business for part of the year and then converted it to personal use for the remainder of the year?

The credit can have a business portion and a non-business portion depending on how the car is used.  Determine the business credit amount first (e.g., the percentage of total miles driven for business multiplied by the available credit amount) and treat the remaining credit amount as a nonrefundable personal credit.

Can I apply the New Plug-in Tax Credit against alternative minimum tax?

The personal portion of the credit (i.e., the amount of credit attributable to personal driving) can be applied to reduce AMT liability.  However, to the extent the vehicle is used for business purposes, the business portion of the credit cannot be used to reduce the taxpayer’s AMT liability.

 

Just Qualifying For The Federal Program With A 4.4 kWh Battery Pack, The Toyota Prius PHV Is Eligible For A $2,500 Credit

Just Qualifying For The Federal Program With A 4.4 kWh Battery Pack, The Toyota Prius PHV Is Eligible For A $2,500 Credit

Can I carry over my unused credit amount to a different tax year?

To the extent the credit is treated as a personal credit (i.e., attributable to personal driving) any unused credit can’t be carried over to another tax year.  However, to the extent the vehicle is used in the purchaser’s business, a proportionate amount of the credit is treated as a general business credit and the unused business credit can be carried over to another tax year.

Can I still claim the credit if I also claim depreciation deductions on my vehicle?

Yes, but the depreciable basis of the property must be reduced by the amount of the New Plug-in Tax Credit claimed.

If I always get a refund every when I file my return, does that mean that I won’t be able to use the credit since it is non-refundable?

Not necessarily.  If a taxpayer is going to receive a refund attributable to W-4 over-withholding or excessive estimated tax payments, he or she may still be able claim the credit to the extent of the taxpayer’s tax liability for that year.

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10 responses to "Top 15 FAQs on the Income Tax Credit for Plug-in Vehicles"

  1. KenZ says:

    This is helpful and timely, but don’t forget that if you purchased and/or installed an EVSE at your residence, the cost of that is tax deductible too (assuming you have the tax liability as stated above).

  2. pjwood says:

    I got to apply my PHEV tax-credit last year. This year all Turbo Tax gave me was my Natural Gas ‘Active’ participant status, on a K-1 (as if I get my hands dirty). It reduced my taxes about $2,500, on a ~20k MLP investment in a pipeline. The federal subsidy does this for me every year.

    Just sayin’, in case anyone gives you PHEV incentive flack.

  3. RobertT says:

    If I purchase two cars on 2 different years. Could I claim the credit for each car on different years?

    1. MTN Ranger says:

      Yes, you could hypothetically purchase a new car every year and get the tax credit each time.

  4. notTesla says:

    Couple of inaccuracies – the federal tax credit has nothing to do with dealerships. If leasing, the entity who onws the car receives the tax credit, and it is up to them to decide if they pass it all along (Like Nissan Acceptance Corp) or not. Also H&R Taxcut does not support the form needed to claim the credit.

  5. notTesla says:

    Also if not having enough federal tax liability – you can convert an IRA into a ROTH and generate taxes to be offset by the tax credit. And yes, you can claim as many tax credits as your federal liability is and are not limited to just one car per year.

    1. Jack says:

      Great idea… Converting to a Roth IRA !!

  6. Mark Raymaker says:

    If the vehicle dealer or the owner arranged for a loan for the EV can the owner claimed the tax credit? In other words the lender is the ‘really’ the owner so can the ‘driver’ who is paying the loan claim the tax credit?

    1. Nix says:

      The tax credit goes to whomever is the primary titleholder listed on the title, not any lien holder.

      With a typical car purchase, your name is on the top of the title. The bank holds the title with a lien registered on the title, but they are not the registered owner. You get the tax credit, not the bank.

      For a Lease, everything is the other way around. The bank or lease company has their name on the top of the car title, and they get the tax credit. They may pass some or all of that tax credit on to you, or they may not. That all comes down to how much your lease payments are, and what you negotiate.

  7. Nix says:

    FAQ #16 — Do I Have to Wait Until Next Year To Get My $7,500 Dollars?

    Answer — No. If you have already bought a qualifying car this year, you can go to your employer and change your W4 and reduce how much of your wages are withheld in the same year you made a qualified purchase. Talk to your favorite tax professional for details, and make sure to change it back at the end of the tax year for next year.