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What You Need to Know About Green Car Income Tax Credits

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On: Thu, Jul 18, 2013 at 5:08PM | By: Elizabeth Puckett

What You Need to Know About Green Car Income Tax Credits

Many people are drawn to the prospect of buying an electric plug-in car and getting a federal tax credit. Indeed, income tax credits offered by the federal government can help to make these models more cost effective—they do tend to have a much higher ticket price than their gasoline-powered predecessors. However, shoppers who want to take advantage these money savings tax credits need to pay attention, as they might change or expire before they make their purchase.

Unlike the purchase rebate offered by the federal government, the income tax credit offered is not just a check that comes in the mail. The income tax credit is given when the electric car buyer files their yearly income tax returns. That is, when they file their tax income return for the year the electric car was purchased.

Tax credits vary from $2,500 up to $7,500 for battery-powered electric cars and plug-in hybrids. The credits are actually based on the capacity of the battery pack used in the car. For the minimum pack size of four kilowatt hours, the car owner will get the lesser tax credit while people who drive cars with 16 kilowatt hour plus packs will get more.

Based on this scale, the Toyota plug-in Prius hybrid will get you a $2,500 credit, the Ford Fusion and C-Max Energi models gain $3,750, and models like the Tesla S, Chevy Volt, and Nissan Leaf all get $7,500 in tax credits.

There’s actually a cap on how many cars per maker qualify for the income tax credit. Hybrid models are capped at 60,000 cars per auto maker, and plug-ins are capped at 200,000 cars per maker. These caps apply only to the number of vehicles sold in the U.S., and once that number is reached the credits phase out over a one year period—beginning after the second quarter following the achieved quota. The the two quarters after, the credit is cut in half, in the third quarter it is lowered to 25% of the original income tax credit amount.

As of last month, General Motors is the auto maker closest to its limit with 41,313 Volts sold as of June 30th. Nissan is following closely, selling 29,351 Leafs already. Toyota is still pretty far behind with only 17,000 Prius plug-in models sold. Tesla, the underdog in the game, has sold 12,000 Model S models.

There’s still plenty of tax-qualifying cars left on the lots and many dealerships are offering incentives for plug-ins. This could be one of the most economical times to date to buy an EV.


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