Electric Vehicle Tax Credits on the Dawn of Change: Price Cap Rises for Qualifying Trucks and SUVs


Ford

As the U.S. House of Representatives draws closer to passing President Biden’s Build Back Better bill, Democrats made some last-minute changes to the electric vehicle tax credit this week. The $ 5,000 credit increase remains, but now more expensive trucks, vans and SUVs will qualify, if the bill passes through both houses of Congress. Scroll down for the status of electric vehicle tax credits.

Will the amount of the EV tax credit increase?

As of October 28, it seems the answer is yes. The Build Better bill includes a tax credit of $ 12,500 for electric vehicles, compared to the $ 7,500 currently available for cars and eligible buyers. Its inclusion comes as the bill removes several other elements to compromise with various Democrats.

The finer details are not yet available, but the White House has floated elements of past negotiations. To qualify, automakers will have to build the electric vehicle in the United States and with unions. So far, it appears that $ 5,000 more is available: $ 4,500 for building a vehicle with union labor and an additional $ 500 for using US-made batteries. The White House said in its original October announcement that “the executive electric vehicle tax credit will reduce the cost of an electric vehicle made in America with American materials and union labor by $ 12,500 for a middle class family “. Importantly, it would disqualify Tesla for at least part of the increase in the tax credit, and even American automakers building electric vehicles outside the country, like Ford’s situation with the Mustang Mach-E.

In the latest changes this week in the House of Representatives, Democrats raised the price cap on qualifying electric vehicles. The new wording allows vans, trucks and SUVs with a manufacturer’s suggested retail price of up to $ 80,000 to qualify for the $ 12,500 credit. Previously, the original framework set a limit of $ 64,000 for vans, $ 69,000 for SUVs and $ 74,000 for pickup trucks.

Democrats also reduced income eligibility to claim full credit. Single filers with adjusted gross annual incomes of $ 250,000 or more, or joint filers with AGIs of $ 500,000, will not be eligible for the full credit. The dollar figures are down sharply from $ 400,000 for single filers and $ 800,000 for joint filers.

The president would like to encourage the purchase of EVs, and this push is part of a proposed $ 555 billion investment in climate change actions. Now we’ll have to wait and see if Democrats officially sign the package to pass it.

What is the VE tax credit?

Section 30D of the Internal Revenue Code grants a tax credit to anyone who purchased an eligible electric vehicle during the year. It includes passenger vehicles and light trucks. The credit first came into being with the Energy Improvement and Extension Act of 2008, and changes came with the American Recovery and Reinvestment Act of 2009. The latter really gave us tax credits like us. we know them today.

The credit offers up to $ 7,500 in tax credit when you claim an EV purchase on the taxes produced for the year you acquired the vehicle. So, if you bought an electric vehicle this year, in 2021, you will claim the purchase when filing your 2021 taxes next year.

What if I owe money on my taxes when I apply for the credit?

It’s the best of times, in fact. The VE tax credit is a non-refundable credit. In other words, the government is not writing you a check for the balance. So let’s say you owe the federal government $ 10,000 in taxes when filing your taxes for 2021. Let’s also say you bought a Ford Mustang Mach-E in 2021, who is eligible for the full credit amount of $ 7,500. Your federal tax balance would then drop to $ 2,500. If you owed less than $ 7,500, the EV Tax Credit would reduce that balance entirely to a balance of $ 0, even if it supports the tax bill and more. Essentially, buying an EV can wipe out tax bills very well. However, it doesn’t put money right in your pocket. Keep this in mind if you are someone who typically receives a federal refund when filing income tax.

Are there federal grants for an EV?

Biden’s proposed U.S. jobs plan called for $ 100 billion in subsidies for electric vehicle buyers, if passed. However, on June 24, the President accepted a bipartisan effort this does not include these grants. However, after Senate Democrats passed a $ 3.5 trillion budget plan, House Democrats demanded that electric vehicle subsidies be included in any final legislation. The proposal provides $ 160 billion to fund purchasing subsidies and incentives, funding for electric vehicle charging infrastructure, incentives for manufacturing electric vehicles, federal requirements for purchasing electric vehicles, and incentives for the electrification of commercial heavy-duty fleets.

Do EV Tax Credits Count for Used Electric Cars?

Like renting an EV, buying a used electric car also doesn’t allow you to claim the traditional EV tax credit. However, a new bill called the Affordable Electric Vehicles for Working Families Act could change that. The legislation would provide up to $ 2,500 in return for someone filing taxes and claiming a used EV purchase. For individuals, the $ 2,500 begins to disappear on an income of $ 75,000 a year; those filing jointly would see the $ 2,500 sunset when they report income over $ 150,000. According to the bill, a used electric vehicle would have to be at least two years old and cost less than $ 25,000 to be eligible for the $ 2,500 rebate. If passed, it could provide another option for those priced out of a new EV.

How do I get the total tax credit of $ 7,500 today?

The Internal Revenue Service’s Form 8936 is how you calculate the amount you will receive in return, which you will need to complete and report with your taxes. Each vehicle with an outlet earns a minimum of $ 2,500 through the Electric Vehicle Tax Credit, which includes a plug-in hybrid, not just a fully electric battery-powered vehicle. The vehicle must include at least 5 kilowatt-hours of energy from its on-board battery. However, the government adds money to the credit for each additional kWh of energy packaged in a battery. For each additional kWh, the tax credit increases by $ 417. This is where the dollar numbers can change as it depends on the vehicle, not your finances.

For example, a Kia Niro plug-in hybrid qualifies for a $ 4,543 tax credit, due to the size of its battery. PHEVs often have smaller batteries than EVs because they share the efforts of the powertrain with an internal combustion engine. But, the Kia Niro EV qualifies for the full $ 7,500 tax credit because of its larger battery size. The government caps the credit at a maximum of $ 7,500. Even for electric vehicles with giant batteries, they are not candidates for more money. In most cases, pure electric vehicles are the target cars for the full cash back of the tax credit.

Why can’t I claim the EV tax credit for my Tesla?

Tesla is by far the largest maker of electric vehicles in the United States today. However, those who buy an electric vehicle from the automaker will not be able to claim the car on their taxes. This is because the current credit law is phasing them out after a particular automaker has sold over 200,000 qualifying vehicles. In the case of Tesla, it sold its last eligible vehicle in 2019, leaving no additional tax credit to take advantage of. It is the same for General Motors. A Chevrolet, GMC, Buick or Cadillac electric vehicle is not eligible for the electric vehicle tax credit as of today. Automakers continue to press for new legislation to make credit available to them again.

Can I rent an EV and claim the tax credit?

Unfortunately, there is no tax credit if you decide to lease a new electric vehicle. Instead, the tax credit actually goes to the automaker or lender who finances the leased vehicle. Thus, to really benefit from the advantage of the tax credit, you must buy an electric vehicle, and not rent one.

What are the credits and incentives for state electric vehicles?

Many states and even local governments looking to accelerate adoption rates for electric vehicles are offering their own incentives. California is a leader in incentivizing the purchase of electric vehicles with a direct consumer rebate of up to $ 4,500, for example, through the Clean vehicle discount project. However, there is currently a waiting list for applications. The states of Colorado, Washington, and New England also offer generous state incentives that you can combine with the Federal Electric Vehicle Tax Credit. Even your local utility company can subsidize an EV purchase.


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