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Once again, the electric vehicle tax credit provision in President Joe Biden’s Build Back Better bill has undergone major changes. In the latest revisions of the bill, House Democrats decided to turn the currently nonrefundable EV tax credit into a refundable credit. What does that mean for you? EV buyers could make up to $12,500 back from the federal government under the right conditions. Read on for the latest.
Will the EV tax credit amount increase?
As of Oct. 28, it looks like the answer is yes. The Build Back Better bill includes a $12,500 EV tax credit, up from the current $7,500 available to qualifying cars and buyers. Its inclusion comes as the bill sheds multiple other elements to compromise with various Democrats.
Here’s how the proposed changes shake out, and keep in mind, they may change yet. The base amount remains $4,000, as it is today, with another $3,500 available if the EV’s battery pack includes at least 40 kilowatt-hours of capacity. In the case of plug-in hybrids, the gas tank cannot exceed 2.5 gallons. This is for cars placed in service before 2027. Now comes the $5,000 boost. EVs and consumers will be able to qualify for another $4,500 in the tax credit if an automaker makes the EV in the US with a union workforce. Another $500 comes into play for automakers using a US-made battery, for a maximum of $12,500 available. Today, the only car that would qualify for anywhere near the full proposed credit is the Chevrolet Bolt EV and Bolt EUV. This provision would, notably, exclude Tesla and even the Ford Mustang Mach-E, since it’s assembled in Mexico.
In other changes made last week in the House of Representatives, Democrats increased the price cap for qualifying EVs. The new language allows for 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 initial framework set a limit of $64,000 for vans, $69,000 for SUVs and $74,000 for pickup trucks.
The Democrats also reduced income eligibility to claim the 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 is keen to, and this push comes as part of a proposed $555 billion investment into actions to combat climate change. Now, with the bipartisan infrastructure bill’s passage in the US House, the Build Back Better bill is set for a vote the week of Nov. 15. It will then need to clear the Senate before the president can sign it into law.
Will the EV tax credit be refundable?
Currently, the tax credit is a nonrefundable credit when you file your taxes. That means that the government does not cut you a check for $7,500 — all it does right now is reduce your federal tax bill.
However, the latest version of the Build Back Better bill with new House language turns the EV tax credit into a refundable one. With this change, it wouldn’t matter if an EV buyer owes the feds or not — anyone who buys an EV will be potentially eligible for at least $4,000 in their pocket. The change would move the tax credit much closer to a point-of-sale incentive, and with the right qualifying EV, buyers could receive a max of $12,500 back from the government for buying a battery-powered car.
What if I owe money on my taxes when claiming the credit?
Until we know if the Build Back Better bill passes both chambers, this is the best case scenario, actually. The EV tax credit is currently a nonrefundable credit, so the government does not cut you a check for the balance. Let’s say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let’s also say you purchased ain 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of the tax bill and then some. Presently, purchasing an EV can wipe away tax bills, but it does not put cash directly into your pocket. Keep that in mind if you’re someone who typically receives a federal refund when filing taxes.
However, with the latest changes, the credit would become a refundable credit. So, using our Mustang Mach-E example, let’s say you owed $1,000 in federal taxes and purchased the electric SUV. It’s still eligible for the $7,500. The updated EV tax credit would provide you $6,500 back in your pocket at tax time.
Why can’t I claim the EV tax credit for my Tesla?
Tesla is by far the largest EV maker in the US today. However, those who purchase an EV from the automaker will not be eligible to claim the car on their taxes. That’s because the current law for the credits phases them out after a particular automaker sells over 200,000 qualifying vehicles. In Tesla’s case, it, leaving no additional tax credits to take advantage of. The same goes for . A Chevy, GMC, Buick or Cadillac EV is not eligible for the EV tax credit as of today. The automakers continue to lobby for new legislation to make credits available to them once again.
Changes to the EV tax credits would again open the door to Tesla’s eligibility, and to GM’s. The changes would also keep these credits open for 10 years, with eligibility for any EV in the first five years. During the last five years, the credits would only apply to US-made EVs. In other words, Tesla and Tesla buyers would benefit greatly from the Build Back Better bill.
What is the EV tax credit?
Internal Revenue Code Section 30D provides a tax credit to any person who purchased a qualifying EV during the year. It includes passenger vehicles and light-duty trucks. The credit first came to life with the Energy Improvement and Extension Act of 2008, and amendments came with the American Recovery and Reinvestment Act of 2009. The latter really gave us the tax credits as we know them today.
As it stands, the credit provides up to $7,500 in a tax credit when you claim an EV purchase on taxes filed for the year you acquired the vehicle. So, if you bought an EV this year, in 2021, you would claim the purchase when filing your 2021 taxes next year.
How do I get the full $7,500 tax credit today?
The Internal Revenue Service’s Form 8936 is how you calculate how much money back you’ll receive, which you’ll need to fill out and file with your taxes. Every vehicle with a plug earns a minimum of $2,500 from the EV tax credit — that includes a plug-in hybrid, not just a totally battery-electric vehicle. The vehicle must include at least 5 kilowatt-hours worth of power from its onboard battery. However, the government adds money to the credit for each additional kWh worth of energy packed into a battery. For every extra kWh, the tax credit increases by $417. This is where the dollar figures can shift around since it depends on the vehicle, not your finances.
For example, a Kia Niro plug-in hybrid is eligible for $4,543 from the tax credit, due to its battery size. PHEVs often have smaller batteries than EVs, since they share powertrain efforts with an internal-combustion engine. But, the Kia Niro EV is eligible for the full $7,500 tax credit because of its larger battery size. The government caps the credit at $7,500 maximum. Even for EVs with giant batteries, they aren’t candidates for more money. In most cases, pure EVs are the target cars for the total cash back from the tax credit.
The qualifications will change with the Build Back Better bill, but we’ll need to wait to see what the final changes are.
Are there federal subsidies for an EV?
Biden’s proposed American Jobs Plan included $100 billion in subsidies for EV buyers. However, on June 24, the president agreed to athat does not include these subsidies. Subsidies then made their way into early language of what became Biden’s Build Back Better bill, but they are not included any longer.
Do EV tax credits count for used electric cars?
Like leasing an EV, buying a used electric car also does not allow you to claim the traditional EV tax credit in any way. But, the Build Back Better bill would change this. Right now, the bill includes a $2,000 credit for used EVs at least 2 years old that cost under $25,000. There’s an extra $2,000 available if the EV includes at least a 40 kilowatt-hour battery for a total of $4,000 available for qualifying EVs.
Can I lease an EV and claim the tax credit?
Unfortunately, there is cannabidiol the same as cbd oil no tax credit if you decide to lease a new electric vehicle. Instead, the tax credit actually goes back to the automaker or lender financing the leased vehicle. So, to actually earn the tax credit benefit, you need to purchase an EV — not lease one.
What are the state EV credits and incentives?
Many states and even local governments looking to speed up EV adoption rates offer their own incentives. California is a leader in incentivizing EV purchases with a direct consumer rebate up to $4,500, for example, through the. There is currently a waitlist for applications, however. Colorado, Washington and New England states also offer some generous state incentives that you can combine with the federal EV tax credit. Even your local utility company may subsidize an EV purchase.