What is a Hybrid Car Tax Credit?

A federal hybrid car tax credit is available to consumers who buy plug-in electric vehicles (EVs) in the United States. According to the U.S. Department of Energy, you can receive a tax credit of up to $7,500 for each electric vehicle you purchase on or after January 1, 2010. The IRS will give a federal tax credit of $2,500 to $7,500 for the purchase of new electric vehicles on or after January 1, 2019. This credit will last until each participating manufacturing sells 200,000 EVs in the U.S.

Qualifying for the Tax Credit

According to U.S. News and World Report and Credit Karma, the tax credit is available for both all-electric vehicles and for plug-in hybrid electric vehicles (PHEVs), which use both gasoline or diesel fuel and electric power. The vehicle in question must be brand-new and you must mainly drive it within the U.S.

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Calculating the Tax Credit Amount

If you’re considering an electric vehicle, U.S. Department of Energy, recommend looking up the tax credit for the make and model, which varies depending on the car’s battery capacity. The credit also varies depending on whether the vehicle is a hybrid model or completely electric.

For example, U.S. News and World Report and Edmunds report that you can receive a $4,502 tax credit if you purchase the plug-in Toyota Prius Prime hybrid hatchback. According to U.S. News and World Report and Credit Karma, the 2019 Kia Niro EV qualifies for the full $7,500 tax credit.

As each manufacturer approaches 200,000 electric vehicles sold, the credit will begin to phase out. For example, the GM electric vehicles previously qualified for a tax credit of $3,750. The credit dropped to $1,875 on October 1, 2019 and will end on March 31, 2020. Tesla phased out the credit for its seven electric car models as of December 31, 2019.

eFile reports the tax credit by make and model as follows:

• 2012 – 2018 Ford Focus Electric, $7,500
• 2013 – 2019 Fiat 500e, $7,500
• 2013 – 2017 Ford CMAX Energi, $4,007
• 2014 – 2020 BMW i3, $7,500
• 2014 – 2017 BMW i8, $3,793
• 2014 and 2016 Cadillac ELR, $1,875 (expires on March 31, 2020)
• 2014 – 2016 Chevrolet Spark, $1,875 (expires on March 31, 2020)
• 2014 Honda Accord, $3626
• 2016 – 2018 Audi A3, $4,502
• 2016 – 2018 BMW X5, $4,668
• 2016 – 2018 BMW 330e, $4,001
• 2016 – 2019 Hyundai Sonata Plug-In Hybrid, $4,919
• 2017 – 2019 BMW 740e, $4,668
• 2017 and 2018 Cadillac CTS plug-in, $1,875 (expires on March 31, 2020)
• 2017 – 2019 Chevrolet Bolt, $1,875 (expires on March 31, 2020)
• 2017 – 2019 Chrysler Pacifica PHEV, $7,500
• 2017 – 2019 Hyundai Ioniq electric battery hybrid, $7,500
• 2018 and 2019 BMW 530e, $4,668
• 2018 and 2019 Honda Clarity Plug-in Hybrid, $7,500
• 2018 and 2019 Hyundai Ioniq Plug-in Hybrid, $4,543
• 2018 and 2019 MINI Cooper Countryman, $4,001
• 2019 Audi e-tron SUV, $7,500
• 2019 and 2020 BMW i8, $5,669
• 2019 and 2020 Ford Fusion Energi, $4,609
• 2019 Hyundai Kona, $7,500
• 2019 and 2020 Jaguar I-Pace, $7,500
• 2019 Land Rover Range Rover PHEV, $7,087
• 2020 BMW 530e, $5,836
• 2020 BMW 745e xDrive, $5,836
• 2019 Land Rover Range Rover PHEV, $6,295
• 2020 MINI Cooper Countryman, $5,002
• 2020 MINI Cooper Hardtop, $7,500

Claiming the Tax Credit

When you file your federal tax return for the year when you purchased an EV, you must include IRS Form 8936. A tax professional can assist you, if you aren’t sure how to complete this form. In addition, eFile notes that you can amend your tax return if you purchased an EV in the past three years but did not claim the credit.

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The tax credit for an electric vehicle is nonrefundable. That means that while it will eliminate your federal tax liability, you will not receive a refund for the excess amount. In addition, you cannot receive a discount or rebate when you buy the car in lieu of a tax credit.

U.S. Department of Energy, eFile.com, and Edmunds note that the tax credit is not available when you lease an electric vehicle. However, the dealer may lower the monthly payment to pass along the tax credit savings.

Edmunds notes that you cannot transfer the original tax credit on a preowned vehicle. Only the person who purchases and registers the vehicle when it is brand-new can claim the tax credit. Even if he or she never did so, the credit will not be available to another buyer. For this reason, it may be more cost-effective to purchase a brand-new EV than a preowned EV so that you can qualify for the valuable tax credit.

Available State and Local EV Tax Credits

According to U.S. News and World Report and Credit Karma, many states and municipalities also offer incentives and credits for those who buy electric cars. These may include tax credits as well as vouchers, rebates, vehicle registration discounts, and other offers. For example:

• Some California companies provide rebates for charging stations and other equipment purchased for EVs.
• EVs are not subject to state emissions inspections in Colorado.
• The Clean Vehicle Rebate Project in California offers a $7,000 incentive for resident who lease or buy an EV.
• Colorado residents can qualify for a credit of $5,000 for the purchase of an EV, which can be combined with the federal tax credit for a total savings of up to $12,500.

Fuel Cell Vehicle Tax Credits

According to eFile, businesses that use fuel cell vehicles may qualify for an Alternative Motor Vehicle Tax Credit as long as the company is the original purchaser of the new vehicle. These cars and trucks draw power from cells that create electricity directly from chemical energy. This credit is available only for fuel cell vehicles purchased prior to 2017.

Businesses classified as S corporations or partnerships can claim this tax credit for 2019 by attaching Form 8910 to their income tax returns. Other businesses must claim the credit on Form 3800, General Business Credit.

Resources:

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https://cars.usnews.com/cars-trucks/how-does-the-electric-car-tax-credit-work

How do electric car tax credits work?

https://www.fueleconomy.gov/feg/taxevb.shtml

https://www.efile.com/tax-credit/hybrid-car-tax-credit/

https://www.caranddriver.com/news/g29994375/future-electric-cars-trucks/

https://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle-tax-credits.html

https://www.caranddriver.com/features/g27271118/best-hybrid-electric-cars/