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How Does the Electric Car Tax Credit Work?

We are seeing more electric vehicles (EVs) coming to the market. Some of them are fully automatic, such as the Tesla Model 3 or Ford Mustang Mach-E. Some plug-in hybrid electric vehicles (PHEVs) can travel at least 12 miles on a single battery, such as the Jeep Wrangler 4xe. And some are the hybrids we have known for a few decades now, like the Toyota Prius. New technologies are often more expensive than gasoline-powered cars, which is why the US government has created an electric vehicle tax credit to help eliminate extra costs to encourage consumers to buy less-emitted cars.

Have you ever seen an ad for that EV tax credit. Usually the ad shows the price of a car and then realizes that it can go up to seven thousand five hundred dollars in tax debt when you buy a car. This is not a good-for-nothing situation; of course there is a tax credit available on the twelve electric cars you can buy today. But as you can expect, there are a few things to know before you buy.

Which Cars Are Suitable?

According to IRS regulations, a car must meet a few steps to qualify for a tax liability:

  • It should have four wheels.
  • It cannot weigh more than 14,000 pounds.
  • It should have a battery that provides 4 kilowatt-hours (kWh) or more of power.

It should be able to charge from an external sauce – that is, a plug.

The first two tires are easier for most passenger cars to drive, as they have four wheels and are not big, heavy-duty truck sales. The third hoop puts electric cars out of gas- and diesel cars. The battery that starts your car and uses air conditioning does not provide more than 4 kWh of power, and it does not scare cars. And the fourth hoop is the most important: the car should get its tax from the inside lock. So all Electric car credit read, and plug-in hybrids read, but standard hybrids do not read EV tax credit.

That’s natural, but there are a few other ways to deal with it. This car should be purchased after the year 2010, so we have eliminated this problem by over 10 years. Therefore, you should start driving in the year that you claim to be. This means that the tax credit only applies to new cars, not used cars. 

Someone has already taken a tax credit, say, the 2018 Nissan Leaf you buy as a used car in 2022. You will usually not be able to take out a loan on a rented car. The rental company considers the loan as the original car manufacturer, but they usually show the tax credit in the car price. This can be a powerful place to talk if you are looking for a rental EV or PHEV.

How Much Debt, Really?

The number we see most often – the $ 7,500 tax bill – is found in full electric cars, which run on battery power only. The tax debt for PEEVs depends on the size of their battery, with a minimum debt of $ 2,500. So, for example, the Kia Niro EV is eligible for a full $ 7,500 tax credit. The Kia Niro PHEV, which has a small battery but has an internal plug for power, is eligible for $ 4,543 tax credit. The Kia Niro Hybrid does not qualify for this tax credit because it does not have a plug inside.

Unfortunately, it does not take any kind of arithmetic to determine the amount of credit available for each car and battery size. Our recommended site has a handy list of all borrowed cars as well as money.

What About Phase-Out?

If you are looking to buy a new electric car, you may have learned that these tax credits are designed to get you out. There is a cap on this tax credit of 200,000 electric cars per manufacturer.

This means that the first 200,000 Tesla Model S cars to gain access to eligible garages were $ 7,500. But the company hit that number by the end of 2018, so in 2019, the tax debt was halved to $ 375 for six months. Then it was reduced again to 25%, for a debt of $ 1,875, for another six months. This means that all Tesla cars are now completely exempt from federal tax credit. GM as a manufacturer with a number of brakes finds itself in this ship of incompetence. It has sold many electric cars under its own Cadillac and Chevrolet brands, including the Chevy Volt and the Chevy Bolt.

However, because some manufacturers brought their electric cars to sell later than GM and Tesla, all other brands have not yet sold 200,000 electric cars. Even the Nissan Leaf is still worth borrowing, even after more than a decade of sales, as it is the only electronic module sold by Nissan. The cap is manufacturing-large, so if Nissan had four electric cars and sold fifty thousand each, they would have hit the sales cap.

How Does This Tax Debt Work?

Taxes are deceptive, so we will try to be as transparent as possible. Tax debt reduces the amount of tax you borrow – your personal income tax – per year. This is not tax deductible, it reduces your income tax. This debt is against tax rates. It is non-refundable or refundable, and does not depend on the price of the car on the design on the day you buy it. Lets look at this a little more closely, as the tax debt is not going to benefit everyone in the same way.

When you submit your tax for the year you purchased your EV or PHEV, you will also submit a form to claim this tax credit. So if you buy your car in May 2022, you will not be using the tax credit until you apply your 2022 tax early 2023.

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