In 2022, industry sources have noted that electric vehicles (EVs) have seen a spike in sales and registrations. And though their popularity continues to grow steadily and demand for EVs has increased, these vehicles still only make up a small percentage of automobiles on U.S. roadways today.
Buying a new EV can qualify you as for a tax break for new electric vehicle owners. This tax code gives credit to purchasers on certain plug-in electric drive vehicles, including light truck and passenger options. The current value of the new credit is $2,500, though buyers can get additional savings based on their battery capacity. This extra credit has a cap of $5,000, and the overall limit for this break is $7,500 per qualifying EV.
But, buyer beware–not all EVs can qualify for this tax credit.
What is an EV?
When attempting to qualify for this tax credit, the requirements for an eligible EV are defined these autos using the following characteristics:
- Has four wheels
- Propelled primarily using an electric motor
- The motor draws its energy from the vehicle battery
- The battery's capacity must have a minimum of four kilowatt-hours
- Recharging must be conducted using an external energy source (a plug, for example)
Who can benefit from this tax credit?
However, not all that apply get this credit due to the per-manufacturer cumulative sales limitation. This means that when a manufacturer sells 200,000 or more qualifying EVs in the U.S., this tax credit phases out over the following six quarters. This is determined on a cumulative sales basis after December 31, 2009.
To better understand what this means for prospective buyers, consider the following: Tesla and General Motors EVs are no longer eligible for this tax break. Additionally, Toyota recently sold enough plug-in EVs to trigger its own credit phase-out of this federal tax incentive because it sold more than the 200,000 electric plug-in car threshold in the U.S.
However, there has been a recent movement in which more automakers are approaching Congress to remove the limit on how many consumers can receive this tax break. Big-name auto manufacturers like Chrysler, Ford, GM, and Toyota recently sent a letter asking House and Senate leaders to extend this tax incentive to allow all EV buyers to benefit from it. The belief motivating the request to lift this limit is that doing so will encourage buyers to purchase EVs, create more purchase options, and stabilize careers for autoworkers.
If you would like to know more about which EVs qualify for this tax credit, the IRS maintains a list of current qualifying vehicles on its website here: https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit.
Other notable details about the plug-in EV tax credit include the following pieces of information:
- This credit only applies to new EVs
- You can take the credit for the year you begin driving the vehicle
- Eligible vehicles should be used primarily in the United States
- EVs should have a gross weight of under 14,000 pounds
Keep in mind, these are just the general requirements, and your state might offer additional incentives. To learn more about this federal tax break for your new plug-in electric vehicle, contact us.