Although we still do not see as many electric vehicles (EVs) as cars on the road today, they are increasing in popularity all the time. And what many people do not know, if you buy one, you may be eligible for a federal tax break in the year you place the EV in service.
The tax code provides a credit to purchasers of qualifying plug-in electric drive motor vehicles including passenger vehicles and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that cannot exceed $5,000. The maximum credit allowed for a qualifying EV is $7,500.
The EV definition
For purposes of the tax credit, a qualifying vehicle is defined as the following:
- Must be a new vehicle
- Have at least four wheels
- Propelled to a significant extent by an electric motor, which draws electricity from a battery. The battery must have a capacity of not less than four kilowatt hours and be capable of being recharged from an external source of electricity.
- Must be used predominantly in the U.S. and have a gross weight of less than 14,000 pounds.
If all four of the above requirements are met, there is one more hurdle to jump over. You must buy the vehicle before the allocated credits for that specific EV are gone. The credit may not be available because of a per-manufacturer cumulative sales limitation. Specifically, it phases out over six quarters beginning when a manufacturer has sold at least 200,000 qualifying vehicles for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For example, Tesla and General Motors vehicles are no longer eligible for the EV tax credit.
The IRS provides a list of qualifying vehicles on its website and it recently added several models that are eligible. You can access the list here: https://bit.ly/2Yrhg5Z.
Electric motorcycles
There is a separate 10% federal income tax credit for the purchase of qualifying electric two-wheeled vehicles manufactured primarily for use on public thoroughfares and capable of at least 45 miles per hour (in other words, electric-powered motorcycles). The maximum credit allowed for a qualifying two-wheeled EV is $2,500.
This electric motorcycle credit was recently extended to 2021 purchases.
The above is just the beginning of the rules. There may be additional incentives provided by your state. Contact us if you would like to receive more information about the federal plug-in electric vehicle tax break and how to claim it on your return.
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