How Do EV Tax Deductions Work?
Milford, NH Resident Has Questions
The EV tax credit is a federal tax advantage for those that purchase a new or used electric vehicle. New electric vehicles can offer a tax deduction of up to $7,500, while car buyers purchasing a used EV may quality for up to $4,000 in tax deductions. Buyers can opt to claim this credit when filing their taxes or they have the option to transfer the credit to an eligible car dealer and choose an immediate discount on the purchase of the vehicle in lieu of a future tax deduction. There are income limits for taking advantage of this tax deduction. To qualify for a new EV tax deduction, single filters must have an income below $150,000 and below $300,000 for those filing jointly. The used EV tax deduction is only available for single filers with an income below $75,000 and $150,000 for married couples filing jointly.
A Milford resident was on the cusp of purchasing his first electric vehicle. Curious if there were any tax advantages to purchasing an electric car, he contacted the team at Merrimack Tax Associates.
Stipulations to Qualify for the EV Tax Deduction
Not all EV or plug-in hybrid vehicles may be eligible for this tax deduction. You will want to verify with the car dealership that the vehicle will be eligible for this deduction. There are requirements pertaining to the battery capacity and vehicle weight that may make some models ineligible for the EV tax deduction. The MRSP for the vehicle cannot exceed $80,000 for vans, SUVs, and pickup trucks and $55,000 for all other vehicles. The vehicle must also undergo its final assembly in North America to qualify for this money back.
Claiming the EV Tax Deduction
You have two options for claiming this tax deduction. You can take this on your taxes as a deduction at the end of the year purchased. This is done by submitting IRS Form 8936. The other option is to transfer your tax credit to the qualified dealership that you are purchasing your EV from. The dealer can then reduce the cost of the electric vehicle by this amount, seeking their own reimbursement from the IRS. This latter option allows you to see the immediate tax benefit to purchasing an EV. Be sure that your income does not make you ineligible for this deduction, in which case if you take the tax savings at the time of purchase you will be responsible for paying this money back to the IRS.
The Milford resident was pleased to hear about the tax savings that he would be offered on the purchase of his EV. He has opted to have this amount reduced from the total cost of the vehicle at the time of purchase.