How Does the Federal Tax Credit for Electric Cars Work?

There are a lot of advantages to buying a new electric car like the Mazda MX-30 in the Sauk Rapids area! Electric cars are great for the environment, they boast powerful performance specs, and you’ll never have to stop for gas again. But there are financial benefits to buying an electric car as well, namely the federal tax incentive. You may have heard about this incentive, which starts at a minimum of $2,500 and goes all the way up to $7,500 depending on the EV’s battery capacity and gross vehicle weight rating! The finance team at Eich Mazda has more information on how the electric car tax credit works in the guide below.

Which EVs Are Eligible for the Electric Car Tax Credit?

While the electric car tax credit is very popular, it doesn’t actually cover every single EV model available. The electric car must be new, not pre-owned, and it must be manufactured after December 31, 2009. Additionally, it has to meet the following criteria:

• Draws propulsion using a traction battery that has at least 5 kilowatt-hours (kWh) of capacity
• Uses an external source of energy to recharge the battery
• Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
• Meets specified emission standards
• Has to be mostly driven in the United States

There are plenty of online tools like this one that will estimate the credit you’ll get for the model you’re considering in Sauk Rapids. The model has to be built by a qualified manufacturer and must have a battery pack rated for at least 4 kWh of energy storage that can be recharged from an external source. For this reason, plug-in hybrids may also be eligible for the tax credit–while they aren’t full EVs, they do need to be plugged in to recharge the battery.

Am I Eligible for the Federal Electric Car Tax Credit?

Once you’ve confirmed that the EV you want is eligible for the federal tax credit and meets all of the requirements, the next thing you should determine is if the tax credit fits your financial situation. The first thing to be aware of is that the electric car tax credit only applies if you buy the vehicle–if you lease it, the credit will go to the leasing institution instead.

The next thing to consider is how much you owe on income tax, since it caps how much of the tax credit you can claim. You must owe at least $7,500 in income tax to claim the full $7,500 federal tax credit. The amount of credit matches the amount that you owe in income tax, so if you only owe $3,000, then you’ll only get $3,000 of the tax credit–even if your EV model is eligible for the full $7,500.

Finally, be aware that you can’t pass on the tax credit to someone else if you decide to sell your EV–only the registered owner of the EV model can claim the credit. This also means that you can’t be eligible for the credit if you buy a used EV, since you aren’t the original owner.

How Long Will the Federal Electric Car Tax Credit Be Available?

Another important thing to know about the federal electric car tax credit is that it won’t be available forever. The tax credit is only available to manufacturers until they sell 200,000 eligible EVs or plug-in hybrids. Once the manufacturer reaches this milestone, the availability of the tax credit will phase out after the second quarter. Some manufacturers, like Tesla and General Motors, have already met this milestone and therefore won’t be eligible for the tax credit any longer. You can find a list of qualifying manufacturers on the IRS website.

Find Your Next EV at Eich Mazda!

If you have any questions about how the electric car tax credit works, please don’t hesitate to contact our office. You can also stop by our dealership near Saint Joseph to talk to a member of our team in person, and we’ll be happy to help you out. If you’re interested in saving even more on your next ride, be sure to check out our rotating selection of new vehicle specials.