I am looking for a new vehicle. I never really thought of an electric vehicle until I became a bit infatuated with a Tesla which, as I am sure you know, is an electric car. Being a CPA, I also knew about the tax credit of $7,500 for certain electric vehicles so that was enticing, also. Then I heard on the news that the credits for Tesla vehicles are being phased out and so I decided I needed to do some research on these credits. And here are my findings.
The electric vehicle federal tax credit is for new (not used) vehicles that are purchased, not leased. It can be worth up to $7,500. To be eligible, a vehicle must be a four-wheeled plug-in electric vehicle to be used primarily in the US on public streets, roads and highways and meet certain technical requirements.
Buyers can rely on the manufacturer’s certification for the amount of the credit since not all electric vehicles will qualify for the full $7,500. It is based on kilowatt hour capacity of the battery, with a minimum of a four-kilowatt-hour battery.
The credit is phased out over four calendar quarters when the manufacturer has sold 200,000 qualifying vehicles. This is what happened with Tesla.
Tesla sold more than $200,000 qualifying vehicles through the third quarter of 2018 which triggered the phase out of the credit, effective January 1, 2019. That means the credit for Tesla vehicles purchased between 1/1/19 and 6/30/19 is reduced to 50% of the credit amount. For Tesla vehicles purchased between 7/1/19 and 12/31/19, the credit is reduced to 25% of the allowable credit. No credit will be allowed for Tesla vehicles purchased after 12/31/19. The models that were eligible for the $7,500 credit are the Model 3, Model S, and Model X.
Well, sad news for me since I was interested in the Model 3, but not quite ready to take the plunge. So, I guess I will have to expand my search of vehicles to see if I can find another vehicle that qualifies for the credit.
Below is a list of fully electric popular eligible vehicles that qualify for the maximum $7,500 credit:
- BMW i3
- Kia Soul EV
- Chevrolet Bolt
- Mercedes-Benz B-Class EV
- Fiat 500e
- Hyundai Ioniq Electric
- Ford Focus Electric
- Nissan Leaf
Here is a list of Plug-in Electric/Gas Hybrids eligible for $7,500 credit:
- BMWi3 with range extender
- Chrysler Pacifica
- Chevrolet Volt
- Honda Clarity Plug-in Hybrid
There are also several other models that are eligible for lesser credits of the plug-in hybrids.
The credit of $7,500 can be used to offset your regular federal income tax liability as well as any alternative minimum tax (AMT) tax bill. Since there are no income restrictions, even the wealthiest can qualify for this credit. It is claimed by preparing form 8936 and including in your return. Some states also give credits or rebates. I am not aware of any credits for Iowa, but it would be worth discussing with your insurance agent to see if they possibly have any discounts.
If an electric car and saving dollars are of interest to you, take a look at the list above and see if any of those models catch your eye! You may be able to help the environment AND save taxes at the same time.
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Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen Hurst Clark Smith (MHCS) celebrates 70 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and financial planning expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
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