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Electric Vehicle Tax Credit

  Sanjiv Gupta CPA  Published 
Electric Vehicle Tax Credit

Tax Credits vs. Tax Deductions

Tax deductions reduce the taxable income of a taxpayer, whereas tax credits cut down the amount of tax owed to the government. Congress can grant tax credit in order to promote a certain industry or behavior, like purchasing a plug-in electric vehicle.

Hybrid Vehicles vs. Plug-In Hybrids

Hybrid vehicles, designated as HEVs have become popular brands today which are selling very fast within the automobile market. The technology utilizes an internal combustion engine as well as an electric drive train. These mainly run on electric power at city speeds and reserve costly gasoline power for use at highway speeds. Electric batteries get recharged by capturing energy usually wasted during the idling and braking processes.

PHEVs or Plug-in Hybrid Electric Vehicles have greater advantages than HEVs, being able to travel further on electrical power. They are equipped with a plug-in battery charger for use when the battery levels go low.

Plug-In Electric Drive Motor Vehicle

Plug-in electric vehicle refers to an automobile propelled by an electric motor to a significant extent, which in turn is battery-propelled and capable of getting recharged from an external electrical source.

New Plug-In Electric Drive Motor Vehicle implies a vehicle whose original usage starts with the taxpayer and gets acquired for lease or use by the taxpayer and not resale.

Section 30D of the Internal Revenue Code provides credit for Plug-in Electric Drive Motor Vehicles that are qualified. This includes light trucks as well as passenger vehicles. Vehicles acquired later than December 31, 2009, are allowed credit worth $2,500 and above, for vehicles which draw from battery propulsion energy having a minimum capacity of 5-kilowatt hours together with an extra $417 for each battery acid kilowatt-hour which exceeds 5-kilowatt hours. There is a limit of $7,500 for the business credit allowed for any particular vehicle.

This form of credit starts phasing out for any manufacturer that has sold 200,000 vehicles at minimum for use within the US. For sales done later than 31st of December, 2009, this is determined on a cumulative basis. Notice 2009-89 carries further details on this matter.

Originally, Section 30D was enacted in the 2008 Energy Improvement and Extension Act. The 2009 American Recovery and Reinvestment Act amended section 30D which took effect for vehicles obtained later than December 31, 2009. As well, the American Taxpayer Relief Act (ATRA) modified Section 30D got for some 2 or 3-wheeled automobiles acquired after 31st of December 2011 and prior to January 1, 2014.

However, such vehicles need to have been purchased for either leasing or usage and not resale. In addition, original use of such vehicle should commence with taxpayer, with the vehicle being predominantly used within the US. Under state law, a vehicle is not classified as acquired before its title passes to the taxpayer, relative to the application of 30D credit.

Notice 2009-89 applies for vehicles obtained after December 31, 2009. It delineates which procedures apply for vehicle manufacturers when certifying a vehicle for requirements pertaining to the Qualified Plug-in Electric Drive Motor Vehicle Credit. This piece of regulation also enables them to know what amount of credit is permitted relative to a particular vehicle.

The new qualified plug-in electric drive motor vehicle credit, designated as NQPEDMV credit does not cover two- and three-wheeled vehicles. However, qualifying vehicles (those acquired later than December 31st, 2011 and prior to January 1st, 2014) of two- and three-wheeled nature, were served by a separate form of business credits.

Allowance of credit

Credit is allowed against the tax imposed by Chapter 30D for taxable year for an amount equal to sum of credit amounts determined the subsection (b). This shall apply to each new plug-in electric drive motor vehicle that is qualified and which the taxpayer has placed in service during the same taxable year.

In addition, dollar limitations apply per vehicle. Specific applications are available too for various situations. This includes personal credit and business credit handled as a section of general business credit.

  • There are additional criteria which are required of a vehicle in order to qualify for this tax credit as follows:
  • Credit is allowed within the year when a vehicle is placed in service
  • The original use of the eligible vehicle should begin with an individual purchaser (vehicle has to be new)
  • The eligible automobile must be predominantly used within the U.S., apart from weighing below 14,000
  • Credit is allowed when a vehicle is acquired for lease to another person but disallowed if the car is meant for resale
  • Tax benefits available for an eligible vehicle get reduced unless one opts for the credit not to apply to the vehicle eligible

Different rules apply for limiting the application of credit against alternative and regular minimum taxes for the portion of credit pertaining to personal use and that pertaining to business or another profitable usage