Connect with Electric Vehicles Credit

The tax law rewards environmentally conscious car owners.

Buy an electric vehicle that qualifies for a special tax credit. The options continue to expand as technology improves.

But you may have to move fast to get the car you want. The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for domestic use.

The credit for “plugin vehicles” is equal to the sum of (1) $2,500 plus (2) $417 for a vehicle that draws propulsion energy from a battery with not less than five kilowatt (kw) hours of capacity in excess of 5 kw hours, not to exceed $5,000. Thus, the maximum electric vehicle credit is $7,500, regardless of weight.

To qualify for the credit for plug-in vehicles, these requirements must be met:

  • A vehicle with at least four wheels must be manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails). For example, golf carts do not qualify.
  • The vehicle is treated as a motor vehicle for purposes of Title II of the Clean Air Act. This effectively bars certain low-speed motor vehicles from the credit.
  • The vehicle has a gross vehicle weight rating (GVWR) of less than $14,000 pounds.
  • The vehicle is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of being recharged from an external source of electricity.
  • The vehicle is used predominantly in the United States.
  • You are the original use of the vehicle. You must have acquired it for use or lease and not for resale.

Based on current projections, most manufacturers will not clear the 200,000 mark before the end of the year. But Tesla, a notable exception, crossed the threshold in 2019, so the credit disappeared on July 1. Similarly, the credit for GM’s Chevy Bolt has been halved to $3, 750 in 2020. If you are in the market for one of the other top-selling electric vehicles – say, a Ford Focus or a Toyota Prius – do not delay.

Find the list of qualified vehicles at www.irs.gov/business/qualified-vehicles-acquired-after-12-31-2009

Small Business Tax Strategies
September 2020