White House’s version of the Build Back Better bill includes changes to the EV Tax Credit System. This has been passed from the White House, and now the system heads to the Senate.
With the rule system of President Joe Biden, the tax credit system has been massively adjusted to a better system. It has modelled a refundable tax credit which was not included before. Below is some news concerning this massive change.
EV Tax Credit
This new change would move the tax credit much closer to a point-of-sale incentive. And with the right qualifying EV, buyers can receive a max return of $12,500 back from the government for buying an EV battery-powered car.
With these above explanations, you must have understood what an EV Credit is all about. EV stands for Electric Vehicles. And the rule entails the tax all EV buyers are set to pay for purchasing and using such vehicle.
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.
Biden EV Tax Credit
Following the massive changes to better incentivize electric car purchases, the United States House of Representatives passed President Joe Biden’s Build Back Better bill.
The legislation also includes a refundable tax credit for about $12,500, and this is a huge shift from the current nonrefundable amount. Now the bills are headed to the Senate where it needs to pass before becoming an official rule.
Is the EV Tax Credit Refundable or Nonrefundable?
Currently, the tax credit has a nonrefundable system when you file your taxes. Meaning the government does not cut you a check for $7,500. It only reduces your federal tax bill.
However, the new modelled version of the Build Better bill turns it to a refundable one. With this new change, it wouldn’t matter if an EV buyer owes the feds or not. So, anyone who buys an EV will be eligible for at least return of $4,000 to their pocket.
Is the EV Tac Credit Amount Increasing?
As of November 19th, the answer seems to be a YES. The Build Better bill will include a $12,500 tax credit, up rom the current $7.500 available to qualifying cars and buyers. This conclusion comes in place as the bill sheds multiple other elements to compromise with various Democrats.
Federal EV Tax Credit | How Does EV Tax Credit Work
Here’s how the new changes shake out, and keep in mind, it hasn’t been put to rule as of writing. The main amount still remains $4,000, as it is today, with another $3,500 available if the vehicle’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 EVs placed in service before year 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.
EV Tax Credit 2021
In other changes made last week in the House, 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.
Federal EV Tax Credit 2021
The president is keen to incentivize EV purchases, and this push comes as part of a proposed $555 billion investment into actions to combat climate change. Following the bipartisan infrastructure package’s passage, the House turned its attention to the Build Back Better bill. The House passed the legislation Nov. 19 with all of these EV tax credit changes. However, it now heads to the Senate, where it would need to pass before any of this becomes law.
Why is my Tesla not Eligible for the Tax Credit?
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 sold its last qualifying vehicle back in 2019, leaving no additional tax credits to take advantage of. The same goes for General Motors. 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.
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. And it 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.
Do EVs have federal subsidies?
Biden’s proposed American Jobs Plan included $100 billion in subsidies for EV buyers. However, on June 24, the president agreed to a bipartisan effort that 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.
Are used electric cars eligible for the tax credit?
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 two 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?
There is 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. To earn the tax credit benefit yourself, 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 Clean Vehicle Rebate Project.
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.