Electric car tax credits: what you need to know about financial incentives for electric vehicles

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Governments all over the world are very keen on getting people to adopt electric cars. But there is little they can do by threatening to ban the sale of new gasoline-powered machines. This is where the financial incentives come in.

By tapping into your wallet, governments hope to encourage people to step out of the fence and switch to some kind of electric vehicle. The only problem is knowing what these incentives are and how you can claim them.

However, there are many incentives with different eligibility criteria. In the United States, there are also different types of incentives depending on the state or even the city in which you live.

So let’s break down some of the most common financial incentives available, to better help you understand exactly how much money you’re entitled to claim once you’ve actually purchased an EV.

Financial incentives for electric vehicles available in the United States

The $ 7,500 federal tax credit

The main financial incentive available to buyers of electric vehicles in the United States is a tax credit of $ 7,500. In short, anyone in the United States who purchases a brand new qualifying electric vehicle can claim a tax credit of up to $ 7,500.

The bottom line here is that not all electric vehicles are eligible for the subsidy. Most EVs on sale in the United States are, but that changes once the parent company sells more than 200,000 EVs. This is the reason Tesla and General Motors electric vehicles are not eligible – they are just too popular.

You can check if the car you are looking to buy is eligible on the US Department of Transportation website. Some plug-in hybrids are also eligible, although credit is based on available battery capacity. As such, a number of them, like the Prius Plug-in Hybrid, are not eligible for the full $ 7,500.

It should be noted that the credit only applies to new, unused vehicles, and only if you purchase the car yourself. Leasing does not count, although it does allow leasing companies to claim the corresponding credit themselves.

The amount you can claim will also depend on on your income, and how much tax you actually owe. For example, if you owe $ 5,000 in income tax, your electric vehicle tax credit will be capped at $ 5,000.

How to check local incentives

In addition to federal incentives, some state and local governments also offer incentives if you buy an EV. However, these incentives not only differ from state to state, but they can also be different from city to city.

The US Department of Energy has a tool to help you find federal and state incentives for alternative fuels, although this includes much more than electric cars. It’s a bit tricky to navigate, but it’s worth checking out as it includes incentives offered by private companies, not just the state government.

For example, the California Air Resources Board will offer a point-of-sale discount for up to $ 1,500 if you buy or lease a new electric or plug-in hybrid vehicle under the Clean Fuel Reward Program.

However, Arkansas does not offer individuals any additional financial incentives for the purchase of any type of electric or hybrid vehicle. In fact, the state obliges the owners of such cars to pay extra annual fee. It’s $ 200 for electric vehicles, $ 100 for plug-in hybrids, and $ 50 for other hybrids.

So be sure to check out the list and see what the deal is where you live. After all, electric cars can be quite expensive, and if those incentives make the difference between buying one or not, you should take full advantage.

Possible future incentives

The future of electric vehicle incentives is not yet certain, but lawmakers have taken steps to change the way the U.S. government can encourage people to ditch gasoline.

Proposal ‘Affordable Electric Vehicles Act for Working Families‘would offer a tax refund of up to $ 2,500 for the purchase of a used electric car. However, it would be limited to one credit every three years and phased out for buyers earning over $ 75,000.

Since used electric vehicles are generally not eligible for financial incentives and not everyone can afford to buy a brand new electric car, this would be a big win for electric vehicle adoption.

The United States has also proposed a new Additional $ 4,500 tax credit for electric vehicles assembled by unionized workers, plus an additional $ 500 for cars using batteries made in the United States. Including the existing $ 7,500 tax credit, that means electric vehicle buyers could get back up to $ 12,500 if they buy the right model of electric car.

However, the move has been criticized by non-national automakers, such as Toyota and Honda, as well as Tesla, whose workers are not unionized.

But the move would also remove the credit’s 200,000 sales limit, making GM and Tesla cars eligible again. The credit would also last 10 years, giving customers the option to recoup it on their taxes.

EV financial incentives available in UK

At present, the main financial incentive offered to buyers of electric vehicles in the UK is a plug-in vehicle subsidy. This grant goes up to £ 2,500 and applies to the purchase of a number of zero emission vehicles.

The grant itself will cover up to 35% of the purchase price of a car, less any additional options purchased by the customer, provided the price is less than £ 35,000. Unfortunately, this only applies to new electric vehicles, which means used electric cars are not eligible.

Unlike the US system, which gives buyers a tax credit, this subsidy is essentially a rebate offered at the point of sale. In other words, all the hard work is done by the dealer and the price you see advertised has already factored in the subsidy.

The grant also applies to electric motorcycles, mopeds, vans, taxis and trucks, provided they are both on the approved list and meet the emission criteria. But the amount the subsidy will cover differs depending on the type of vehicle in question.

The UK government is also offering money for the cost of installing a home charger. The Electric Vehicle Homecharge program covers up to 75% of the cost of a home EV charger up to a value of £ 350. Again, this amount is deducted from the price by licensed installers, so the price you see is the price you pay – provided you qualify for it.

However there are many eligibility criteria for individuals to claim this grant including, but not limited to, possession of a approved electric car, have never claimed against the program before (unless they own two electric vehicles simultaneously), and the ownership meets the strict requirements set out by the government. These requirements include exclusive access to private off-street parking, banning cables from running on public land, etc.

The future of UK incentives for electric vehicles

The British government recently announced that there would be a £ 620 million investment in grants for electric cars, which will be distributed to finance residential street charging as well as grants for rechargeable personal vehicles. In other words, it will continue to allow drivers to get a discount on new electric vehicles.

This is good news, given that there had been rumors that the UK government would remove the subsidy for plug-in vehicles, especially after comments made by Rachel Maclean, then Parliamentary Under Secretary of State for Transport, in July. Maclean commented that the grant could disappear “over time”. Fortunately, it seems that time is not now.

It’s unclear what the new investment will mean for the EV grant as it stands, especially since the grant itself has been reduced over the years. The most recent change was a reduction from £ 3,000 to £ 2,500 in March 2021 and a reduction in the value of qualifying cars from £ 50,000 to £ 35,000. We will therefore have to be patient and see what the government has planned.


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