Given that electric vehicle (EV) sticker prices are expected to fall to a level on par with regular, internal-combustion powered cars in the next few years — thanks to the plunging cost of manufacturing EV battery packs — there’s a good argument for holding off on an EV purchase.
But if you’re eager to purchase an EV sooner, a good money-saving move is to focus your search on EVs still eligible for a tax credit of up to $7,500. A credit reduces your taxes owed — far better than a deduction that reduces the income you pay taxes on. (More below.)
Spoiler alert: Teslas don’t qualify. Nor do Chevy Bolts. But plenty of other EVs are eligible for the federal tax credit.
Edmunds gives its Top EV rating to the new Volkswagen ID.4 and the Kia Nero EV. Both qualify for a $7,500 federal tax credit right now. Other models that qualify for a $7,500 break include the Nissan Leaf, Porsche Taycan models, the MINI Cooper SE Hardtop, a few BMW models, and a bunch of Ford Mustang EVs. Plug “fueleconomy.gov tax credits” into your browser to land at the government’s full list of available federal EV tax credits.
The federal EV tax credit
Starting in 2010, the federal government got in the game of helping hybrid and EV car manufacturers gain traction in our gas-dominated car market. Consumers who bought a new hybrid or EV would be eligible for a federal tax credit, depending on the size of the battery, of as much as $7,500.
The federal EV tax credit isn’t refundable; the credit can only be claimed to reduce your actual tax bill. For example, if your federal tax bill is $10,000 and you qualified for a $7,500 EV credit, your tax bill would shrink to $2,500. But if your tax bill was only $5,000 you would only be able to use $5,000 of your EV credit to offset that tax due.
Nor can you carry over the unused portion of the EV tax credit into the next year. And under the current program only new EVs are eligible, not used.
The full tax credit only applies to a manufacturer who has yet to sell 200,000 EVs (across all its models). Once that sales level is reached, the credit phases out. For the next two quarters the EV credit is reduced to 50% of its original value and the following two quarters it drops to 25%, before disappearing completely.
Teslas no longer qualified for any federal credit beginning in January 2020. The Chevy Bolt was kicked out of the program as of April 2021. The price of success.
Focus on newer EVs
While EV sales are growing in the U.S., they are still barely a rounding error in new car sales. Car research firm Edmunds.com estimates retail EV sales accounted for less than 2% of new car purchases last year.
If you’re willing to look past Teslas and the Chevy Bolt, the official U.S. government EV tax credit website lists dozens of EVs that still qualify for a full federal tax credit.
Or wait a bit …
If you’re hell-bent on a Tesla or Chevy Bolt, but are patient, you might want to sit tight and see what happens in Washington. It’s not clear if the Biden Administration’s anticipated infrastructure bill — which would include huge subsidies of some sort of EVs — would reinstate the credit for Tesla and Chevy Bolt. But the Green Bill, reintroduced by House Democrats in February does just that: It proposes lifting the 200,000 ceiling to 600,000, but also limits the top credit to $7,000. It would also introduce a credit for the purchase of used EVs.
And check for state incentives
Many states offer rebates on EV car purchases. New Jersey offers a rebate of as much as $5,000 (and a sales tax exemption, which is a huge help in the tax-addled state). Oregon also offers a max EV rebate of $5,000 for new purchases, and up to $2,500 if you purchase a used EV. California offers a rebate of up to $2,000 for pure EVs and $1,000 for hybrids. Massachusetts offers rebates of up to $2,500 for electric and $1,500 for hybrid on cars with MSRPs below $50,000.
For a deep dive into state (and local) government EV incentives, check out the Alternative Fuels Data Center. Plug in “AFDC state” in your web browser.