Sales of electric vehicles surged by almost 60% in the third quarter of 2021. If you’ve purchased an electric vehicle in the last year, you could benefit from the EV tax credit. However, figuring out how much of a credit you’re eligible for can be complicated.
Find out what you need to know about the EV tax credit and how a CPA can help you get the most significant benefit.
Current Federal EV Tax Credit
IRS Internal Revenue Code Section 30D currently provides a tax credit for eligible electric vehicles. Fully electric and plug-in hybrid vehicles bought new in or after 2010 may be eligible for the federal income tax credit.
The current maximum credit is $7,500. The actual amount of the tax credit you’ll get depends on the size of the vehicle’s battery.
The tax credit is non-refundable. If you owe less than the amount of the credit, the unused part doesn’t come back to you as a refund. You can’t apply it to next year’s taxes either.
Businesses and individuals can qualify for the tax credit. The way the credit applies to businesses is somewhat different, though. The CPA for your business can ensure you’re claiming the credit correctly.
State and Local EV Tax Credits
Many states offer a tax credit if you buy an electric vehicle. Some states offer other incentives and rebates. Some of these programs apply to charging stations as well as vehicles.
In addition to states, some utility companies offer incentives for electric vehicles or charging stations.
Which Vehicles Are Eligible for the Federal EV Tax Credit?
The federal government has established several qualifications for vehicles to be eligible for the tax credit. You have to buy a new car to be eligible. Buying a used electric vehicle doesn’t qualify.
If you lease an electric vehicle, the tax credit goes to the manufacturer who gives you the lease. The manufacturer may factor the tax credit into the cost of the lease, though, which can still help you save money.
Cars, light trucks, vans, and SUVs may meet the requirements. The vehicle must have a battery with at least 5 kilowatt hours of capacity.
The credit begins to phase out for manufacturers who have sold at least 200,000 qualifying vehicles in the U.S. Tesla and General Motors vehicles are currently not eligible for the tax credit because of this rule.
Proposed Changes to the EV Tax Credit
The Build Back Better bill includes changes to the federal EV tax credit. The bill has passed the House and now goes to the Senate.
The House version of the bill would increase the maximum amount of the credit to $12,500. This amount would be divided into several components:
- Base amount of $4,000
- Up to $3,500 based on the size of the battery and the gas tank if applicable
- $500 if the battery is made in the U.S.
- $4,500 if the vehicle is assembled in the U.S. with union labor
The price cap on vehicles would increase. The income eligibility requirement for buyers would decrease, though. The tax credit would become refundable.
Finally, the cap on manufacturers would change. Tesla and GM vehicles would be eligible again.
Ask Your CPA About the EV Tax Credit
If you’ve purchased an electric vehicle in the last year, you may be eligible for a federal tax credit. A qualified CPA like Parker Business Consulting and Accounting can help you determine the amount of your possible credit and its effect on your tax situation.
If you’re considering purchasing an electric vehicle, we can help you see the potential tax benefits. You’ll be in a better position to make a buying decision.
Contact us today for answers to your electric vehicle tax questions.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.