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What Exactly Are Electric Vehicles Tax Credits?

It's not only good for the environment, but it's also good for your budget to drive an electric car. Did you know that causing an electric automobile is around half the price of driving a gas-powered vehicle?

Are you wondering which electric vehicles (EVs) are eligible for federal tax credits? You are not the only one who is at a loss on what to do. 

To assist you in understanding the requirements, we've put up a guide to EV and plug-in electric vehicle tax credits. It addresses some of the most relevant questions you might have about these incentives.

What Exactly Are Electric Vehicles Tax Credits
Electric Vehicles

What Is the Process?

Before we get into which automobiles are eligible for tax credits, let's go over how electric vehicles tax credits operate. 

The notion is simple in theory: "all-electric and plug-in hybrid vehicles purchased new in or after 2010 may be eligible for a federal income tax credit of up to According to the US Department of Energy, the cost is $7,500.

However, you can't just go out and buy an electric car and expect the government to give you a $7,500 tax break in April. In actuality, the amount you qualify for is determined by your income tax and the size of your vehicle's electric battery.

The government calculates individual tax credits based on your federal income tax and vehicle, but reading the fine print is critical. To begin, keep in mind that federal tax credits do not continue indefinitely, and they may have already passed you by in the case of your automobile. 

As the demand for electric cars grows, some manufacturers are breaking through the sales threshold set by the government. Another thing to remember is that the federal tax credit is non-transferable. This credit is only available to the original registered owner. 

As a result, any used electric vehicles you already or plan to acquire are exempt. Any electric car lease is subject to the same terms and conditions. The tax credit is provided to the manufacturer providing you with the lease in this case.

What is the value of the credit?

A credit is commonly described as being "up to" a certain amount of money. The modifier "up to" is quite important. The federal tax credit is widely referred to as a flat $7,500 credit, but it is only worth $7,500 if you owe $7,500 or more in taxes at the end of the year. 

Assume you purchase a qualified electric vehicle and owe $5,000 in federal taxes for the year, and the tax credit will be capped at that amount. The remaining $2,500 will not be refunded through check. The credit cannot be used for the following year's taxes if a portion is not used. 

The size of the battery is another important component in determining the credit amount, and a hybrid vehicle will receive less credit than an all-electric vehicle. In a nutshell, a car must meet the following criteria:

  • It is brand new and acquired from a factory.
  • The word is mostly used in the United States.
  • It is charged from an external source, regardless of battery size.
  • It was purchased in 2010 or after.

What does Will Happen in the Future?

Before his inauguration, President Joe Biden proposed the Build Back Better Plan, often known as the Build Back Better Agenda. It includes funds for COVID-19 aid, social services, welfare, infrastructure, and funds for climate change mitigation.

The strategy was divided into three parts. One of those components was electric vehicles. Used cars would be eligible for a tax credit under the Build Back Better Act, with buyers of used electric or plug-in hybrid cars earning up to $4,000 in savings. 

(Either the buyer or the used car seller can apply for the credit.) A $7,500 credit, or half the cost of an electric motorcycle or three-wheeled vehicle, is also included in the plan. 

A tax credit is also available for fuel-cell automobiles. Aside from that, customers shouldn't be concerned about the final results because automakers would almost certainly price their cars to satisfy the standards.

Only a small percentage of electric vehicles on the market would qualify for the full incentive. However, we know that many more electric cars will be manufactured and sold in the coming years. Something significant is about to happen. 

President Biden has indicated that half of all new vehicles sold in the United States will be electric within ten years. Many specifics are still being worked out at this time.