Electric Vehicle Credit

Most people are not aware of the Electric Vehicle Credit. Are you considering the purchase of a new car or light truck, less than 14,000 pounds? Maybe you should consider an electric vehicle for sale. If you do, you may be able to take advantage of a federal income tax credit worth as much as $7,500.

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How is the Electric Vehicle Credit Amount Decided?

There is the basic credit amount of $2,500. Next, the electric vehicle battery must have at least 5 kilowatt-hours of capacity. Finally, for each kilowatt-hour of battery capacity over 5 kilowatt-hours, an additional $417 of credit given by the IRS. The credit total for any qualified vehicle is limited to $7,500.

What are Manufacturer Phaseouts?

Yes, the credit does phase out for a particular manufacturer’s vehicles. The phase out happens when at least 200,000 qualifying vehicles have been sold for use in the United States.

Is the electric vehicle credit only for specific vehicles?

If you are not an electrical engineer, it may seem a little difficult to figure out which vehicles qualify for the credit and for how much. You can usually rely on the information provided by the dealer. However, to be on the safe side, you can verify which vehicles qualify. You can also learn what the credit amount available is. This amount is based on the vehicle’s kilowatt-hours and the reduction in credit due to the credit phaseout. Visit the IRS website here. You will see a list of manufacturers with links. Select the link for the manufacturer of the vehicle you are interested in. You can then find out if the model and year of that vehicle qualify for the credit and the amount of the credit.

Allocation between Business and Personal Use

To be eligible for the credit, you must acquire the vehicle for use or lease and not for resale. Additionally, the original use of the vehicle must commence with you, and you must use the vehicle predominantly in the United States. The vehicle is not a purchase before the title passes to you under your state’s law. The credit is available whether you use the vehicle for business, personally or a combination of both. The prorated portion of the credit that applies to business use becomes part of the general business credit. Okay now this applies for the year when you purchase the vehicle. Any credit amount that is not used on your return, can be applied to your previous year’s tax liability. That credit may also be carried forward until it is used up. However, not for more than 20 years.

What a Dealer May Not Tell You!

The personal use portion of the credit:

  1. Is non-refundable.
  2. Is not treated as a general business credit.
  3. Can only be an offset to your tax liability.
  4. Can only be for the year when you purchase the vehicle.

Unfortunately, if there is any excess credit, that credit is lost.

Let’s assume you purchase the vehicle in 2016. You expect your 2016 tax return to be similar to your 2015 return. This will give you an idea of how the credit will apply to you. Worthtax can compare the amount on line 47 of your 2015 Form 1040 to the credit the vehicle provides. If line 47 is greater than the credit, then you will probably benefit from the entire amount of the credit on your 2016 return. If it is less, you will only benefit from the amount on line 47.

Questions about the non-refundable limitations or threshold?

Do you expect your 2016 tax return to be significantly different from your 2015 return? Do you simply want to verify your benefit from the electric vehicle credit? Give Alex Franch, BS EA a call at 781.849.7200. He knows the tax codes so you can maximize your tax credits. He can also help to minimize any misunderstanding there may be regarding the electric vehicle credit. It could be substantial.

Sources and Resources

 

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