How Does the Electric Car Tax Credit Work?
Electric cars are becoming more and more popular. Sales have increased every year, with over 3.1 million vehicles being sold in 2020. Despite the numerous benefits of owning one of these vehicles, some people are still hesitant to purchase one, largely due to the price. However, with recent federal and state tax incentives, this may no longer be an issue.
Benefits of Owning an Electric Vehicle
Owning an electric vehicle comes with some great benefits, such as not having to go to the gas station. Instead, electric vehicles run off of a battery that can be recharged. This not only means you save time, but you’ll also save money. Beyond this, using battery power means fewer emissions, which is great for eco-minded drivers.
In addition to not having to buy gas, you don’t have to worry about oil changes. Electric cars do not use oil, as they run on an electric motor instead of an internal combustion engine. This is one less maintenance cost that electric vehicle owners have to worry about.
It’s also easier to charge electric cars than it used to be. Thousands of charging stations exist all over the country, including a handful of charging stations around the Youngstown, Ohio area. These charging stations allow you to charge your battery while you’re traveling, or you can plug your electric vehicle in and charge it at home. Charging times have improved over the years. For example, the Chevy Bolt can be charged in as little as 80 minutes.
One of the main reasons people don’t buy electric cars is that they believe they’re too expensive. Electric vehicles tend to have a higher price tag, but this doesn’t mean you can’t afford one. At #1 Cochran Chevrolet, we have some amazing deals on electric vehicles, plus, you can take advantage special tax credits that are designed to encourage you to buy electric vehicles, making them affordable for everyone.
What Is the Electric Car Tax Credit?
The electric car tax credit is a non-refundable tax credit that you can apply for when you you buy an electric vehicle. Lawmakers designed the credit to encourage people to purchase an electric car. The credit helps to reduce the tax burden from purchasing an electric car at the end of the year. The two tax credits you can apply for come from the federal level and state level, although some states do not offer an electric vehicle tax credit.
Federal Tax Incentive
Since 2010, the federal government has offered a tax credit for the purchase of an electric vehicle. This tax credit goes up to $7,500, depending on the type of electric car purchased. The purpose of this tax credit is to help deflect the burden of buying an electric vehicle so that more people can enjoy the benefits of driving one.
The credit amount you can receive will depend on a few factors. For starters, each electric car that qualifies for the tax incentive has a base credit of $2,500. From there, an additional $417 is available for every 5 kWh of battery capacity until the $7,500 maximum credit is reached.
However, once an automaker sells 200,000 units of a vehicle that qualifies, a phase out of the credit begins. This means, some older electric vehicle models may no longer be eligible for the electric car tax credit. For instance, there’s no longer a federal tax incentive for Tesla vehicles, as Tesla has reached the established 200,000 quota.
State Tax Incentive
In addition to the federal tax incentive, some states provide additional incentives or tax credits. As an example, Ohio does not offer a tax credit, but its residents are exempt from emissions testing when they purchase a battery electric vehicle (BEV).
How To Take Advantage of the Electric Car Tax Credit
Taking advantage of the electric car tax credit is fairly easy. To start, find out which cars are eligible for this tax credit. The Environmental Protection Agency keeps a running list of which electric cars are eligible and how much the full credit is worth.
To get a tax credit, you have to buy an eligible electric car. When you do, it’s then a simple matter of filling out Form 8936 when you file your taxes. Form 8936 asks for information such as the make and model of the vehicle, the vehicle identification number, and the date of purchase. It also provides you with instructions on how to calculate the credit amount you should receive.
Then, when filing your taxes, you can subtract the credit amount from the amount you owe in taxes. So, if you owe $9,500 in taxes and your electric car tax credit is $7,500, the amount you now owe is $2,000.
Keep in mind, this tax incentive is non-refundable. This means, if the tax credit goes beyond the amount you owe, you don’t receive this money back. For example, if you owe $6,500 in taxes and your tax credit is $7,500, you won’t receive $1,000 back on your taxes. Also, the tax credit only applies in the year you purchase the electric car.
Making Electric Cars More Affordable
Thanks to the federal tax credit and the tax incentives offered by some of the states, electric vehicles, like the 2021 Chevy Bolt, are now more obtainable. If you’re considering purchasing an electric vehicle but you’re hesitant because of the price, now is a good time to look at them again. The federal tax credit and other available incentives may bring the price down into an affordable range for you.
This tax credit may not be around forever because, while the federal government wants to encourage the purchasing of electric vehicles, this may not always be the case. In addition, some of the major manufacturers, such as General Motors, have already reached their cap. As more manufacturers sell enough units, the tax credit will begin to decrease. Therefore, if you want to take advantage of this incentive program, now is the perfect time.
To learn more about the electric car tax credit and how it impacts your purchase of an electric vehicle, please contact Cochran Chevrolet at any time.