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Electric vehicle tax credit for 2021
If you traded in your gas guzzler for an electric model, you could save big with this tax credit.
Electric vehicles usually have a higher price tag than traditional gas guzzlers. But the federal government has a credit in place to help you go green. Here’s everything you need to know about the electric vehicle tax credit.
What is the electric vehicle tax credit?
The electric vehicle tax credit helps lower the upfront cost of buying a hybrid or electric vehicle. If you qualify, the credit lowers the amount of taxes you owe dollar for dollar.
How much is the electric vehicle tax credit worth in 2021?
The electric vehicle tax credit hasn’t changed for the past three years. The credit ranges from $2,500 to $7,500 depending on the size of your vehicle’s battery.
Use this chart to find your credit amount:
| If my battery is this many kilowatt-hours… | …then my electric vehicle tax credit is.. |
|---|---|
| 4 | $2,500 |
| 5 | $2,917 |
| 6 | $3,334 |
| 7 | $3,751 |
| 8 | $4,168 |
| 9 | $4,585 |
| 10 | $5,002 |
| 11 | $5,419 |
| 12 | $5,836 |
| 13 | $6,253 |
| 14 | $6,670 |
| 15 | $7,087 |
| 16 or more | $7,500 |
Limits
The electric vehicle tax credit has quite a few limitations you should be aware of:
- The credit isn’t refundable. If this credit reduces your tax bill to $0, you won’t receive a refund if any amount is left over.
- Used vehicles don’t count. You must purchase the electric vehicle brand new to qualify for the credit.
- You won’t receive the credit if you lease. The car dealership receives the credit for leased vehicles because it holds the vehicle’s title, not the customer.
- Could have state and local incentives. Electric vehicle incentives vary by city and state, so research your area to see if you qualify for additional credits.
- The credit phases out. Once a manufacturer has sold 200,000 electric vehicles in the US, the electric vehicle tax credit is reduced to 50% for two quarters, then by 25% for the third and fourth quarters. After that, it’s gone forever.
Who qualifies for the electric vehicle tax credit?
You qualify for the electric vehicle tax credit if you meet these requirements:
- You bought a plug-in electric or hybrid vehicle after December 31, 2009
- You started driving it this year
- You’re the original owner
- You can legally drive it on public streets and highways
- You primarily drive it in the US
- It draws propulsion energy from a battery with at least four kilowatt-hours
- It has at least four wheels
- It weighs less than 14,000 pounds
If you qualify for the credit, your car manufacturer should give you a certificate explaining the make, model, year of your vehicle and how much your credit is worth.
| Alternative-fuel vehicle | |
| Fuel-celled vehicle | |
| Gas-powered vehicle you converted to electric | |
| New plug-in electric or hybrid vehicle | |
| Used hybrid or electric vehicle |
What vehicles qualify for the electric vehicle tax credit?
Vehicles that qualify for the electric vehicle tax credit, include:
- BMW i3
- Jeep Wrangler PHEV
- Mustang Mach-E First Edition Premium AWD
- Hyundai Ioniq Electric Battery Vehicle
- Volkswagen ID.4
- Kia Soul Electric
- Kia Niro EV
- Nissan Leaf
- Toyota RAV4 Prime Plug-In Hybrid
- Volvo XC40 Recharge Pure Electric P8 AWD
How to calculate the electric vehicle tax credit
Follow these four steps to calculate your electric vehicle tax credit:
- Look up your vehicle’s battery size on the manufacturer’s website or in your manual.
- Use the Electric vehicle tax credit limits 2021 chart to find out how much your credit is worth based on your battery size.
- Check the IRS website to see if your car’s manufacturer has begun the phase-out process.
- Use the credit phase-out chart below to determine the percentage your credit has reduced to.
The electric vehicle tax credit phase out
| If your car manufacturer has sold this many electric vehicles… | …and it’s in this calendar quarter of the phase out process… | …then you’ll receive this much of your electric vehicle tax credit… |
|---|---|---|
| Less than 200,000 | N/A | 100% |
| 200,000 or more | Quarter one or two | 50% |
| 200,000 or more | Quarter three or four | 25% |
| 200,000 or more | Quarter five or more | 0% |
For example, if you qualify for a $7,500 tax credit but the car manufacturer is in the third quarter of the phase-out process, your credit is reduced to $1,875.
How to claim the electric vehicle tax credit
Use Form 8936 to calculate the electric vehicle tax credit. This form consists of three parts:
- Part one: List your car’s information, including its year, make, model, VIN and purchase date.
- Part two: Calculate how much your credit is worth if you bought your vehicle for business or investment purposes.
- Part three: Calculate how much your credit is worth if you bought your vehicle for personal use.
Once you fill out Form 8936, you’ll report your credit amount on Form 1040 if you bought your vehicle for personal use or Form 3800 if you bought it for business use. Or you can use it to pay down an existing alternative minimum tax bill if you have one.
Related tax credits or deductions
There are two other tax credits and deductions to look into if you qualify for the electric vehicle tax credit:
- Residential energy tax credit. You could save up to 30% on any solar panels or solar water heaters you bought this year.
- Property tax deduction. You could write off your vehicle registration if it includes a fee based on the value of your vehicle.
- Motor vehicle tax deduction. You could write off operational expenses if you’re self-employed and use your vehicle for work.
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Bottom line
If you bought a plug-in electric or hybrid vehicle this year, the electric vehicle tax credit is a great way to reduce your tax bill — and indirectly lower your upfront costs. But it only works if you owe taxes because none of the credit is refundable.
Before you file taxes, consider hiring a professional or shop around for an online service that can help you save the most money on taxes.
Frequently asked questions
What tax credit is available for buying a Tesla?
Tesla’s phase-out period has already started. If you bought a Tesla before December 31, 2019, you could claim a $1,875 federal tax credit. After 2019, you won’t receive any tax credit.
Which car manufacturers are in the phase-out process?
As of December 2019, Tesla and General Motors are the only two car manufacturers in the phase-out process.
Visit the IRS website to view an up-to-date list of car manufacturers that have sold at least 200,000 electric vehicles.
How does the electric vehicle credit carry over?
You can’t carry over any unused portion of the electric vehicle tax credit to future years. If you can’t use it all when you claim it, you forfeit the remaining amount.
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