How the Electric Car Tax Credit Works

March 1, 2012

Learn the difference between an electric car tax credit and a tax reduction, and how tax incentives for plug-in electric cars and hybrids work.

tax forms

Buying an electric car can come with a tax credit. The government has been working hard to provide incentives for many things that consumers buy. There has been a cash for clunkers program, which took older, less fuel efficient vehicles off the road for newer, more efficient vehicles. There was also Energy Star product savings on appliances around the home like washers, dryers, fridges, etc. Now, the move is toward even more efficient cars like electric cars. There is a big tax credit that is available for buyers of these cars.

Tax Credit vs. Reduction

A tax credit is better than a tax reduction. A reduction is just a certain percentage off of your taxes. A credit is an actual tangible amount that comes straight off the taxes. This is much better, and often much greater. There are both federal and state incentives. For example, Oklahoma was offering a 50% tax reduction for those that buy a 100% electric, low speed vehicle for towns and cities.

Hybrid Gas/Electric Vehicles

This tax incentive is open until December 31 of 2010. You still have a full year to take advantage of the offer. However, be aware that each car company is only eligible for 60,000 "rewards" so the sooner you buy, the more likely you are still able to get this tax discount. Also be aware that as time goes on, the amount of the credit will be reduced, so the sooner you buy, the bigger the tax benefit will be. There is no set number for the tax discount. There are many factors such as weight of the car, fuel economy, emissions.

Plug In Electric Car Tax Incentives

This incentive is for cars bought after December 31, 2009. The minimum credit given is $2,500. The maximum credit is $7,500. The amount of the discount depends on the battery capacity and battery range. There are other factors as well. The car must weigh less than 14,000 pounds, and also must have at least four wheels. The battery also must be able to be charged externally. This credit will be gone very soon though. As manufacturers sell over 200,00 cars, the amount of the credit will start to be reduced. The biggest thing to take away from this article is that the sooner you buy, the more you will get back. The later you buy, you will receive less money. There is also a tax incentive for those that are converting their cars to a plug in hybrid. This is a popular option on the Toyota Prius. The current incentive is 10% off of the cost of converting the car (i.e. cost is $1,000--you save $100). The maximum credit is to be $4,000 and must be done by the end of the year in 2011.

Overall, buying alternate fuel vehicles can save you money upfront with tax benefits, as well as in the future with reduced gas costs. Gas won't be getting any cheaper, and electricity is about four to five times cheaper than gas.