Even for tax professionals, keeping track of tax breaks that have expired and those that are still around can be challenging. However the federal income tax credit for qualifying new plug-in electric vehicles is still on the books. The credit can be worth up to $7,500. Some states offer additional incentives.
To be eligible for the federal credit, a vehicle must draw propulsion from a battery with at least four kilowatt hours of capacity; use an external source of energy to recharge the battery (thus the term plug-in); be used primarily on public streets, roads, and highways; have four wheels; meet applicable federal emission and clean air standards; and be used primarily in the US It can be either fully electric or a plug-in electric/gasoline hybrid. Finally, the vehicle must be new and be purchased rather than leased. (If you lease an eligible vehicle, the credit belongs to the manufacturer, and that may be factored into a lower lease payment.)
The credit equals $2,500 for a vehicle powered by a four kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.
The credit begins phasing out over four calendar quarters once the total number of qualifying vehicles sold by a particular manufacturer for use in the US reaches 200,000. So far, no manufacturers have crossed that line, although GM might in 2018 or 2019 if sales of the Chevy Bolt and Volt continue at their current pace.
The credit can be used to offset regular federal income tax liability and any Alternative Minimum Tax (AMT) owed. Since there are no income restrictions, even billionaires can qualify. However if the credit exceeds federal income tax liability, excess cannot be carried forward for use in future years. Claim the credit by including Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit) with a return.
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