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Essential Information You Should Be Aware Of

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Essential Information You Should Be Aware Of

The Most Important Details About Electric Car Tax Credits

If you’re interested in driving a hybrid car and hoping for a special incentive, unfortunately, you may be out of luck. However, there is still a tax credit available for nearly every electric car and plug-in hybrid on the market. In some cases, this credit can effectively reduce the cost of these vehicles to that of an ordinary gasoline vehicle or even less.

The widely known $7,500 tax credit can be quite confusing. It’s important to note that the federal government does not treat it as an incentive or rebate to consumers. As a result, you do not receive the credit at the time of purchase. Additionally, it is not a tax deduction that reduces your taxable income. Instead, a tax credit enables you to lower the amount of income tax you owe.

To claim the tax credit, you must include IRS Form 8936 as part of your tax return. While the form itself is relatively simple and straightforward, there are several other key pieces of information you need to be aware of.

One of the most important requirements is that you have a tax liability for that particular year that meets or exceeds $7,500. If your tax liability is lower than that amount, you will lose out on the remaining credit. It is not an extra refund, and you cannot carry over any unused credit to the following year.

It’s also crucial to note that not all electric vehicles and plug-ins qualify for the tax credit. To be included on the federal list of eligible vehicles, the car must be manufactured by a qualified manufacturer and comply with the legal definition of a motor vehicle according to the Clean Air Act. Additionally, the vehicle’s gross vehicle weight rating (GVWR) must be 14,000 pounds or less.

Another requirement is that you must purchase the vehicle new for your own personal use. It cannot be for resale, and if it is sold, it will be considered a used car. Furthermore, the vehicle should be primarily used in the United States, and you must claim the credit for the tax year in which the vehicle is placed in service.

If you are leasing a vehicle, it is unlikely that you can claim the tax credit. In most cases, the leasing company, as the legal owner of the vehicle, will claim the credit, resulting in a more attractive lease payment for you.

Before making any purchasing decisions based on the tax credit, it is advisable to consult with your tax preparer. Different rules may apply for business use, and if you are a business owner, you may have additional opportunities to take advantage of this credit. Having your tax preparer or an accountant familiar with electric vehicle tax credits run the numbers and ask you any relevant questions can provide you with the necessary guidance. It is also worth noting that additional local and state credits or incentives may apply, and your tax professional can advise you further based on your specific situation.

In terms of technology, a vehicle must have a battery pack with a capacity of at least 4 kilowatt hours (kWh) and be capable of being recharged from external sources. This distinguishes electric vehicles from hybrids, which rely on braking/deceleration or the engine to recharge the battery. If a vehicle meets all the other qualifications, the federal government allows a credit of $2,500, with an additional $417 for a vehicle that has a battery capacity of at least 5 kWh. There is also an additional $417 credit for each additional kWh, up to a maximum credit of $7,500.

It’s interesting to note that the Plug-In Tax Credit is not a limited-time offer but does phase out. Each vehicle manufacturer can sell up to 200,000 qualifying vehicles, and after that, the credit amount is phased out over a 12-month period. Even for the bestselling electric car, such as the Nissan Leaf, which plans to introduce more all-electric models, it will take a few more years before the credit is completely phased out.

For those who want to see a list of vehicles that qualify for federal tax credits, the article provides a comprehensive list of electric vehicles and plug-in hybrids from the 2013 model year onwards.

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In conclusion, understanding the details of electric car tax credits is essential for anyone considering purchasing an electric vehicle or plug-in hybrid. While the process may seem complex, consulting with a tax professional can help ensure you make the most of available credits and incentives. Ultimately, electric car tax credits play an important role in making these vehicles more affordable and accessible to a wider range of consumers.

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