It’s more than an electric car tax credit

Buying a car can be a major expense, and if you’re thinking about buying a hybrid or electric vehicle, that price tag can be even higher. Luckily, the federal government offers an electric car tax credit that can help you save money.

Want to take advantage of these savings? See if the car you’re considering qualifies for the credit, how tax breaks for electric cars work and what you need to do to put that money in the bank.

It’s easy to find out if you’re eligible to file for the electric car tax rebate. There are 2 main criteria:¹

• You bought the car in 2010 or later
• You’re the original owner of a qualified plug-in vehicle

If you want the full tax credit, you’ll also need to be one of the first 200,000 or so buyers of your selected manufacturer’s electric vehicle.¹ But even if you don’t act that fast, you can still qualify for a partial credit (more on that later).

The federal electric car tax credit is an incentive to encourage Americans to buy hybrid and electric vehicles by lowering the up-front costs of buying one. The credit program, officially Internal Revenue Service Code Section 30D (IRC 30D), is based on battery capacity. And it could be worth as much as $7,500.¹

Tax credits provide a dollar-for-dollar reduction to your income tax bill.² That means that a $7,500 tax credit would save you $7,500 in taxes. This could show up as part of your refund or as a reduction of the amount of taxes you would otherwise pay. A tax professional can help you understand more.

The U.S. Department of Energy has a handy chart that shows all the vehicles that are eligible for the tax credit, and whether or not that vehicle is being phased out.

What exactly does that phase-out mean for you? When a manufacturer sells 200,000 eligible plug-in vehicles, the federal government will begin to slowly reduce the tax credit until no credit is available. While you can still get the full tax credit up to a few months after the manufacturer reaches that 200,000 mark, the credit will drop to 50% for the next 6 months, then to 25% for an additional 6 months and finally to zero.³

Yes, it is absolutely possible. But your tax credit will be based on what vehicle you decide to purchase. Once you purchase your car, you’ll simply file form 8936 with your tax returns. That tax credit will be applied to the year you file.

Generally, you need to apply for the tax credit the year you purchase the vehicle. However, in some cases, you may be able to amend your tax return.⁴ So, if you’ve purchased an electric vehicle recently or are planning to purchase one, you could end up with a hefty tax refund check in the mail—or pay a lot less than you otherwise would have.

The IRS has all the eligibility details. And a tax professional can always help you make the right decision about filing your tax return.

The federal electric car tax credit isn’t the only credit you could receive. State and local governments, and even some utility companies, offer additional tax credits and incentives to get more people to consider switching to electric cars. The incentives that are available to you will depend entirely on where you live.

To help you get a better idea of what you could save, the Office of Energy Efficiency & Renewable Energy keeps track of the federal, state, local and utility incentives that are available. In addition to tax credits, you might want to take a look at just how much money you could save on fuel. The Department of Energy has a fuel-economy calculator that lets you see just how much money you could put in your bank account rather than in your tank, depending on fuel efficiency and driving habits.

In some cases, your tax credit could show up as a rebate check in your mailbox, which could help make up the difference in price between an electric car and a gas-powered one. Plus, when you combine those savings with what you could save on maintenance and gas, you could really see more money in the bank. So as you’re considering if going green is right for you, keep in mind that filing one form with the IRS could make a huge difference in the overall price of your car.