Teslanomics Explores When $7,500 Tax Credit Will Vanish For Tesla Model 3 Buyers
When will the federal EV tax credit expire, and how will it affect the Tesla Model 3?
The U.S. federal government offers a tax credit for those that purchase an EV. The credit ranges from $2,500 to $7,500 depending on battery size. Essentially, all battery-electric vehicles qualify for the full incentive, because all-electric vehicles have batteries of 16 kWh or greater. Some plug-in hybrids also qualify for the maximum amount, like the Chevrolet Volt and the Chrysler Pacifica Hybrid.
You don’t get the money as a discount at the time of purchase, but rather, it comes back to you at tax time (as long as you actually owe more than that to the feds). You can take instant advantage of the incentive by leasing, because the money gets credited to the dealer, but dealers don’t award full value to the lessee. Once an automaker has sold 200,000 qualifying vehicles, the rebate begins to go away. Specifically, it enters into a phase-out period, which extends a number of months, and diminishes over time. Ben will tell you all about the details in the video.
The question is, when will Tesla hit the phase out, and when will the rebate hit zero? Keep in mind, there is no limit to the amount of qualifying vehicles an automaker can sell from the time it hits phase out, until the time it hits zero.
So, in a perfect world, the automaker doesn’t hit the mark too rapidly, until production is capable of peak speeds. Then, once the mark is hit, the automaker would be wise to dish out as many vehicles as possible, as soon as possible. This would give more consumers the potential to receive the full credit, or at least a fair portion of it.
Ben looks at how many vehicles Tesla has sold thus far, how many it intends to make/sell in the future, and when the company should bottom out. He is looking at around April of 2019 as his data-driven estimate, with Tesla hitting 200k in October of 2017; although for our money, we think it is still more likely to see this number hit early in 2018 (Tesla’s “in production” estimated numbers for the Model 3 for a certain month – starting in July, are not anywhere near the same as “delivered” in our minds). But, take a look at how he lays it out, and his reasoning behind the results, and come to your own conclusions.
Remember that the incentive could go away immediately for all manufacturers, if the current administration so chooses. Also understand that just because it expires for Tesla, has nothing to do with it expiring for competing manufacturers. Automakers just bringing competition to market a few years down the road, will enjoy the full credit for quite some time (as long as there is still a credit).
If the federal incentive expires prior to taking delivery of your Tesla Model 3, will you opt out? If you realize that the incentive may expire for Tesla, and you haven’t yet taken delivery, will this be enough to cancel your reservation and choose another EV? We wonder how many people will actually pick a different vehicle, or simply wait it out, if the rebate goes away.
Video Description via Teslanomics by Ben Sullins on YouTube:
From making a positive impact on the environment to skipping trips the gas station, electric vehicle ownership offers many benefits. Beyond the obvious benefits, another to consider is tax breaks. However, when it comes to taking advantage of these tax credits from Uncle Sam, the requirements to do so can be confusing. In this episode, I make it a little easier. I review how the tax credits work and some things to keep in mind when purchasing a Tesla or any other electric vehicle.
First and foremost, it’s important to understand that the tax breaks for purchasing an EV are tax credits, not discounts towards the purchase of your vehicle. It’s also important to understand how your income impacts your tax credit. Lastly, the number of units sold by vehicle manufacturers also play a role in electric vehicle owners’ tax credit eligibility amounts. Please note, these federal tax credits are available to US Tesla owners only.
Now, let’s talk dollar amounts. According to IRS.gov, “The total amount of the credit allowed for a vehicle is limited to $7,500.”and, in the US, “the credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold.” And, every two quarters, after the phase out begins, that $7500 is reduced by 50%. Also, super important to note, the credit does not take effect until you take ownership of the vehicle. So, when you reserve and bring your Tesla home will likely impact your tax break.
Considering all the above, if Tesla hits 200k units sold in October 2017, the credit will be $7500, and that will last through January 2018. From Q2 – Q3 of 2018, the credit will drop to $3,750. In October 2018 – March of 2019, the credit reduces to $1,875. Based on these projections and considerations, come April 2019, there will be no available tax credit for purchasing a Tesla or any other electric vehicle.
While I’m obviously a Tesla advocate, there are other electric vehicles that are worth considering – these include the Chevy Bolt as well as the next generations of the Nissan Leaf and the BMW i5. In 2018, there will also be a flood of new options, including higher end EVs from Jaguar and Volkswagen.
Whatever electric vehicle option you choose, you’ll not only be saving with tax credits but by helping the planet and saving at the pump. And, when considering which electric vehicle to go with, be sure you have all the facts. I offer various Tesla data and findings on Tesla ownership costs, product information and more.