There is some confusion regarding the Electronic Vehicle Tax Credit and hopefully we can clear some of that up here.
First and foremost, the credit is worth $7,500, maximum. There are of course requirements that must be met. If not, reductions to the credit apply, as much as 100%.
To qualify for the full $7,500 Electronic Vehicle Tax Credit you will need:
- A vehicle that fully complies with the IRS requirements of an electronic vehicle (EV) including the battery size and whether it is charged from an outside source. For instance, a Toyota Prius would not meet the IRS standards and would not be eligible for any credit. The U.S. Department of Energy maintains a full list of vehicle eligibility and credit amounts HERE
- The vehicle must be new, used cars do not qualify.
- The vehicle must be bought, not leased.
Finally, and most importantly the credit is a non-refundable credit. This means to qualify for the electronic vehicle tax credit one must actually owe money to the IRS. To utilize the full $7,500 credit, you must owe the IRS at least $7,500, if you only owe $5,000 then that is the maximum credit you may take.
If you owe $0, well then congrats on that, but you won’t be using any of the electronic vehicle tax credit. Also, it does not carry forward into future years. This creates a tax planning opportunity though, in that you create tax due so you can utilize your tax credit. One strategy would be to convert a Traditional IRA to a ROTH IRA and use the credit against the tax liability created by the conversion.
Electronic vehicles may be our future, but these tax credits likely won’t last forever. If you are planning on purchasing an EV make sure you are going to meet the requirements to fully utilize the $7,500 Electronic Vehicle Tax Credit.
If you haven’t recently reviewed your financial plan you should contact your CERTIFIED FINANCIAL PLANNER™ Practitioner.
If you aren’t currently working with a CERTIFIED FINANCIAL PLANNER™ Practitioner you can find one HERE.