In case you haven’t heard, President Obama wants to change the $7,500 EV tax credit to a tax rebate.
We hope he succeeds. That’s because, as our overview below shows, an EV tax credit is not only unfair — only those in higher income brackets can benefit fully from it — it’s also way too complicated, so complicated, in fact, that it’s safe to say that many people will lose money because they won’t play the EV tax credit game correctly.
Meanwhile, an EV tax rebate would lop $7,500 off the cost of a new EV — right on a dealer’s lot.
In stark contrast, whether you get the full $7,500 credit comes down to your household tax liability. You must have a tax liability of at least $7,500 in order to receive the full Qualified Plug-in Electric Drive Motor Vehicle Credit, which is part of the American Recovery and Reinvestment Act of 2009.
Below is SolarChargedDriving’s list of important factors/things for EV buyers to consider in terms of the $7,500 federal tax credit on EVs. We are not tax experts. In fact, truth be told, we are ourselves trying to figure out where we, in our two-income household, stand in terms of our total tax liability and the federal EV tax credit. Also, each individual tax situation is different. Please keep this in mind as you scan the information/observations below.
Assessing the federal tax credit on EV purchases:
Qualified Plug-in Electric Drive Motor Vehicle Credit
- This tax credit is available for first the 200,000 plug-in vehicles made by each individual car maker. This is the good news, meaning even if there’s a mad rush on Nissan LEAFs and 200,000 are sold by, say, the middle of 2012, you can still get a federal tax credit if you buy a Ford Focus Electric — if Ford hasn’t reached its 200,000 plug-in car thresh-hold. The not-so-good news is, as you’ll see below, not everyone is going to get the $7,500, even if they buy one of the first 200,00 LEAFs, first 200,000 Focus Electrics, etc.
- You have to be in a pretty high income bracket to get the full $7,500 credit. According to a tax expert quoted in a Cars.Com story — one of the few we’ve found that addresses the EV tax credit issue in any depth — a married couple would have to make at least $74,300 after a standard deduction and have no other tax credits or dependents to earn the full $7,500 tax credit. A single tax filer would have to earn at least $54,600; a head of household would need to top $66,300.
- It’s a tax credit, not a rebate. This means it must count against your total federal tax liability. For instance, if your total tax liability is $6,300, you will lose $1,200 of the tax credit and that LEAF you thought you were paying $25,280 out-of-pocket, will actually cost you, $26,480.
- You don’t get the credit right away. You must wait until you file taxes for the tax year in which you purchased your EV to claim the credit, meaning, you will have to pay, up front, the full $32,780 to Nissan for your LEAF and/or $41,000 to GM for your Volt.
- You must take all of the credit in a single tax year. In contrast to some other federal tax credits, for instance, the Residential Energy Credit which, among other things, allows homeowners who install solar to claim a 30-percent credit that they can roll over from year-to-year until 2016, you cannot roll over any of the Qualified Plug-in Electric Drive Motor Vehicle Credit to the next tax year. It’s an all or nothing deal. Either you are able to count the full $7,500 credit against your tax liability in a single year — and it must be for the year in which you purchased your EV — or you are not able to, and you lose the rest of the credit. For example, let’s say you’re able to set $5,000 of the EV tax credit against your total federal tax liability in 2011, the year you buy an EV, you cannot save the “extra” $2,500 and apply this credit to the 2012 tax year.
- You need to account for other tax credits and deductions you will be taking. In a way, other federal tax credits and deductions, such as those for children, education, mortgage interest, etc. hurt your ability to get the full $7,500 EV tax credit. As you check off these credits and deductions, they — like the federal EV tax credit — count against your total tax liability. Let’s say you have a total tax liability of $7,500. If you take a $1,000 credit for education costs, and a $1,000 credit for child care costs, you’ve just cut your total tax liability to $5,500. This means that, in reality, you’ll only get $5,500 of the $7,500 EV tax credit and you’ll lose $2,000 of the credit. Basically, in this case your LEAF will have cost you $27,280 out of pocket instead of $25,280.
- You may want to strongly consider consulting a tax professional. A good tax professional should be able to come up with a variety of different proposals and approaches to help ensure that you are able to take advantage of, as fully as possible, the federal EV tax credit, and, if you live in a state that offers EV incentives, that you are able to take advantage, as much as you are able to, these as well. Of course, unless you are either a tax professional yourself, or have a family member of good friend who will do this for free, you will have to payyou’re your professional tax consultation.
Assessing the federal tax credit — EV home charging stations:
The Federal Alternative Fuel Vehicle Refueling Property Credit
Pretty much all the general information included in the section above on the Federal tax credit for the purchase of an electric vehicle applies to the tax credit for the installation of a home EV charging station. The most important similarity is that you must take all of the tax credit for the purchase and installation of a home charging station in a single year, and for the same tax year in which you had the station installed. Here is one important addition:
- This tax credit could go away after 2011. This tax credit has already been reduced from 2010, and it has only been extended for one year, through the end of 2011. While the tax credit on an EV charger for residential consumers was 50 percent of the total cost of the charger and installation up to a maximum of $2,000 in 2010, for 2011 it has been reduced to 30 percent of the total cost of the charger and installation up to a maximum of $1,000. If you’re getting an EV within the next year, you’d be wise to get a home charging station installed in 2011. Keep in mind, though, that how much of this credit, or even if you get this credit at all, depends, again, on your tax liability and the other tax credits and/or deductions you take in 2011.
Given the complexity of tax credits, again, made clear by all the stuff we’ve gone over above we sure would prefer a federal tax rebate — which would put that $7,500 in your hands right away, at the car dealership, over the head-spinning nature of a tax credit. To us, a tax credit seems designed more to ensure lots of folks screw up and don’t get the money they should so that the government gives out less cash rather than to ensure confusion-free EV purchasing access for the American car-buying public.
Additional reading on WWW about EVs, solar & tax credits
- Considering Nissan Leaf or Chevy Volt? Leasing may make more sense
- The great electric car tax credit rip-off
- Federal EV tax credit must be changed
- IRS forms for your 30% Federal Solar Tax Credit
EV tax credit forms
- IRS 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
- IRS 8911: Alternative Fuel Vehicle Refueling Property Credit (2009 form)
You can take this tax credit across multiple years, all the way through 2016. So, let’s say you have a home solar system installed in 2011 and you buy an EV in 2011 and you have a home charging station installed for your EV as well. Unless you have a hefty tax liability — in the five figures or more — you will want to defer some, or all of this Residential Energy tax credit to 2012 so that you can claim as much of the $7,500 and $1,000 tax credits for the EV purchase and EV charging station as possible.
Remember that it is crucial to make sure to take enough allowances on your W-4(s) to ensure that you owe the federal government at least $8,500 in taxes at the end of 2011.