The State of Electric Vehicle Tax Credits
No, the Federal Electric Vehicle Tax Credit is not dead, but you could be forgiven for thinking so. With reports of the Presidential Administration repealing the tax credit in its 2020 budget, stories about the Driving America Forward Act getting squashed in December, and the credit no longer being available for Tesla, there has been a confusing tangle of headlines. But the reality is that the credits are still available for most electric vehicles. Let’s round up the facts and take a look at the current state of electric vehicle tax credits:
The Federal Tax Credit Explained
You may have seen headlines back in March of 2019 about the Presidential Administration proposing a repeal of the Federal Electric Tax Credit in its 2020 budget. While that possibility did loom for most of the year, the tax credit was kept alive in the eleventh hour due to stiff opposition from Congress. You may also have heard of a bipartisan bill from April of 2019 dubbed the “Driving America Forward Act”, which sought to grant each automaker an additional 400,000 vehicles to the current 200,000 limit. That particular expansion of the credit was indeed eliminated from the 2020 spending package, although the bill still exists in limbo. So, all in all, the tax credit remains in the same state that it was before any of those headlines popped up.
Let’s review how the credit works. The Qualified Plug-In Electric Drive Motor Vehicles tax credit (IRC 30D), otherwise known as the Federal Electric Vehicle Tax Credit, was introduced in 2008. It offers a tax credit of up to $7,500 for passenger vehicles and light trucks acquired after 2009, for the first 200,000 vehicles’ that each manufacturer sells in the United States. Breaking down that phrase:
A Tax Credit:
This is not an instant discount off the MSRP of the vehicle. You do not drive away from the dealership having deducted $7,500 off your receipt — that happens in your tax forms the following year. It's only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. If you only owe $5,000 in income tax for a particular year, then that's all the tax credit will be. Uncle Sam's not writing a refund check for the other $2,500.
of Up To $7,500:
Not every car qualifies for that maximum tax credit. It can change based on the electric car’s battery size. The credit is equal to a starting amount of $2,500 (for a vehicle with a battery capacity of at least 5-kilowatt hours), plus an additional $417 for each kilowatt-hour (kWh) of battery capacity in excess of 5 kWh. Not to exceed $7,500.
For the First 200,000 per Manufacturer:
Once 200,000 cars from a certain manufacturer (not an individual model of car) have been sold, the tax credit does not instantly stop. The credit begins to phase out in the second quarter after the quarter in which the manufacturer reaches the limit. For the first two-quarters of the phase-out period, the credit is 50% of the full credit amount. For the second two-quarters of the phase-out period, the credit is 25% of the full credit amount. The credit is fully phased out in the sixth quarter after the manufacturer reaches the limit.
The Status of Popular Electric Vehicles
As of March 1, 2020
Elon sold his 200,000th car in mid-2018, so the credit began phasing out at the end of that year. By the end of 2019, the phase-out had completed, so Tesla is the first automaker that the Federal Tax Credit is no longer available for. In response, the company announced that it was cutting the price of all its vehicles by $2,000.
Act Fast: Chevy:
Tax Credit Goes Away on March 31, 2020.
Thanks to its popular, but now discontinued, Volt Hybrid Plug-In, General Motors reached the 200,000 milestone at the end of 2018. That meant that the full tax credit was short-lived for its all-electric Bolt. As of Oct 1st, 2019, the tax credit for a Bolt was cut down to $1,875. However, if you act fast, it is still available until March 31st of 2020. Maximize your discount by checking out special pricing deals for the Chevy Bolt available in the Kansas City area.
Although over 400,000 LEAFs have been sold worldwide, the total for sales in the United States at the end of 2019 was around 142,000. That means for the immediate future, you can still recoup up to $7,500 in Federal Tax Credits. Maximize your discount by checking out special pricing deals for the Nissan Leaf available in the Kansas City area.
To figure Ford’s plug-in sales, you need to add up three vehicles: the Ford C-Max Energi and the Ford Fusion Energi Plug-In Hybrids, which both qualify for a $4,007 credit, and the all-electric Ford Focus EV, which can get the full $7,500 credit. That total sits at about 120,000 at the end of 2019. That leaves some margin for Ford once they start selling their new endeavors — the Mustang Mach-E electric SUV, available in late 2020, and the F-150 Electric Pickup Truck, rumored to debut in 2021.
The plug-in hybrid version of the long-time favorite hybrid car has reached an impressive 117,000 sold, so its tax credit will likely continue for a bit longer for the Prius Prime Plug-In Hybrid. However, one should note that its 8.8 kWh battery only qualifies for $4,502 in Federal Tax Credits.
With a variety of cars that can be plugged in, BMW’s total adds up to just over 88,000 sold. The most popular of those is the BMW i3, which qualifies for the full $7,500 tax credit.
There are many more automakers that make qualifying vehicles that we didn’t mention above. Honda has sold over 35,000 plug-ins, Kia over 18,000, Volkswagen over 18,000, and Hyundai over 12,000.
It’s also with noting that, for the time being, the Federal Tax Incentive should still apply to any NEW manufacturers that start making electric vehicles in the United States, so be on the lookout for startups like Rivian, who could start selling their all-electric pickups and SUVs as early as late 2020, starting them with a clean slate of zero.