Plug-In Electric Drive Motor Vehicle Credit: What You Need to Know
As the world shifts towards more sustainable and eco-friendly modes of transportation, electric cars have become increasingly popular. Not only are they better for the environment, but they also help you save money on fuel costs in the long run. However, electric vehicles can be expensive upfront, which is why many governments offer tax credits and other incentives to encourage people to buy them.
In this guide, we’ll take a closer look at Plug-in Electric Drive Motor Vehicle credit (also known as Form 8936) – a federal tax credit that can help you offset some of the costs associated with buying an electric vehicle.
What Is The Plug-In Electric Drive Motor Vehicle Credit?
The Plug-in Electric Drive Motor Vehicle credit is a federal tax credit offered by the Internal Revenue Service (IRS) that encourages individuals to purchase qualified plug-in electric drive motor vehicles. Unlike other incentives like rebates or vouchers, this incentive comes in the form of a tax credit that reduces your overall income tax bill instead of giving you cashback or discounts upfront.
Vehicles eligible for this program include:
– New battery-electric vehicles
– New plug-in hybrid-electric vehicles
– New fuel-cell-electric vehicles
To qualify for this incentive, your vehicle must meet certain requirements such as having four wheels and being primarily designed for use on public roads. Additionally, it should have been acquired during or after 2010 and used primarily within the United States.
How Much Can You Save With The Plug-In Electric Drive Motor Vehicle Credit?
The amount of money you can save with this incentive depends on several factors including:
1. Battery Capacity
For battery-electric and plug-in hybrid-electric vehicles, the size of your car’s battery pack generally determines how much money you’re eligible to receive under Form 8936. If your vehicle has at least five kilowatt-hours (kWh) of battery capacity, you may qualify for a credit of up to $2,500. If your vehicle’s battery has more than 16 kWh of capacity, you could receive a credit of up to $7,500.
It’s important to note that fuel-cell-electric vehicles do not have a capacity limit and are instead eligible for the full $7,500 tax credit.
2. Manufacturer
Another factor that can affect how much money you can save with this incentive is the manufacturer that produces your car. The IRS limits the number of credits available per automaker based on the number of qualified electric vehicles they’ve sold in recent years.
For example:
– General Motors reached their sales cap in March 2020 and no longer offers this incentive.
– Tesla also hit their sales limit in December 2019. However, buyers who purchased an eligible Tesla before January 1st, 2020 are still eligible to receive the full incentive amount.
– Other manufacturers like Ford and Nissan are still below their respective sales caps as of writing this article and offer the full amount.
3. Tax Liability
Lastly, it’s worth noting that Form 8936 is non-refundable – which means it cannot reduce your overall tax liability below zero dollars. In other words, if you owe less than what your tax credit is worth (say $5k), then you won’t get any cashback or refund from the government for the remaining amount ($2.5k).
How Do You Claim The Plug-In Electric Drive Motor Vehicle Credit?
Claiming Form 8936 is relatively easy if you follow these steps:
Step One: Determine Eligibility
Firstly determine whether or not your vehicle qualifies under Form 8936 guidelines by checking its eligibility criteria mentioned above.
Step Two: Obtain A Certification Letter From The Manufacturer
Once confirmed that your vehicle meets all requirements outlined by IRS regulations; contact your dealership or manufacturer to request a certification letter. This letter confirms that the vehicle you purchased is eligible for the tax credit and specifies how much it’s worth.
Step Three: Determine The Credit Amount
Next, determine your total credit amount using the criteria discussed earlier.
Step Four: Complete Form 8936
Complete Form 8936 (Qualified Plug-In Electric Drive Motor Vehicle Credit) to claim your credit. You’ll need to include this form in your annual tax return filing alongside other relevant information like income, deductions, and credits.
It’s important to note that you can only claim this incentive if you’re responsible for paying federal income taxes – which means if you don’t owe any money on your taxes or have a low taxable income, then this credit may not be very useful for you.
Are There Any Limitations To The Plug-In Electric Drive Motor Vehicle Credit?
While Form 8936 offers significant savings opportunities to electric car buyers; there are some limitations worth noting:
1. Phase-Out Periods
As mentioned earlier, each manufacturer has a set number of credits available under this program based on their sales figures. Once they reach their limit, no more credits will be issued until the following year.
2. Used Vehicles Do Not Qualify
Only new vehicles qualify under Form 8936 regulations – so used electric cars are not eligible for these tax incentives even if they meet all other requirements outlined by IRS guidelines.
3. Business Use Is Limited
If you use your electric car primarily for business purposes like commuting or making deliveries; then you may not be able to benefit from these incentives as fully as someone who uses their EV exclusively for personal use due to specific deduction rules laid out by IRS regulations.
4. State Incentives May Vary
In addition to federal incentives offered by Form 8936; many states also offer additional rebates or discounts on electric vehicles depending on where you live and when purchasing a qualifying EV model in certain areas with financial incentives.
Conclusion
The Plug-In Electric Drive Motor Vehicle Credit is a great way to save money when purchasing an electric vehicle. However, it’s worth noting that this incentive has certain limitations and restrictions that may not make it the best option for everyone. It’s important to do your research before making any decisions and consult with a tax professional or financial advisor if you have questions about how this credit can benefit you.