Imagine if the next vehicle you buy is an electric vehicle. You will drive it out from the dealer’s lot straight to an automotive styling service company to get a ceramic coating for paint protection and some window tints. This used to be a dream for people who are deeply concerned about the environment and those who are tech-savvy. It is now within reach.
President Joseph Biden announced in August this year that he is urging car manufacturers to take steps so that 50 percent of new vehicle sales will be electric by 2030. This is part of the United States government’s commitment to reach net-zero emissions of greenhouse gas nationwide by 2050. According to Secretary Pete Buttigieg of the Department of Transportation, vehicles such as cars and trucks with traditional internal combustion engines are the leading sources of greenhouse gas emissions.
Current Tax Credits
Pursuant to Internal Revenue Code Section 30D, you are eligible for a tax credit for the purchase of an electric vehicle, from passenger vehicles to light-duty trucks. You can claim the credit when you file taxes for the year you purchased the vehicle.
The maximum credit is $7,500 for vehicles that are purely electric. Plug-in hybrid vehicles will be eligible for lower credits. The tax credit is non-refundable. This means you can only use it to pay off your taxes for the corresponding year. If you are eligible for the $7,500 credit and you only owe $5,000 in taxes, you will not get a refund. The remaining amount will also not be rolled over as credit for the following year.
Another thing to note is that the credits are only granted for the first 200,000 electric or hybrid vehicles sold by each manufacturer. You will not get a tax credit for purchasing an electric car from Tesla or General Motors because both companies already passed the mark in 2018. The forecast is that Toyota will pass the mark in the second quarter of 2022, followed by Ford in the third quarter, and Nissan in the second or third quarter of 2023.
In addition to the federal tax credits, several states, counties, and municipalities have incentives for the purchase of electric vehicles. California’s Clean Vehicle Rebate Project gives a direct rebate of up to $4,500. Washington, Colorado, and New England also have similar programs. Some local utility companies likewise provide subsidies for electric vehicles.
Tax Credit Proposals
Under the current law, purchasing a used electric car or leasing one does not qualify you for a tax credit. The Affordable EVs for Working Families Act proposes, however, a tax credit of up to $2,500 for purchasing a used electric vehicle. The vehicle must be no less than two years old and cost less than $25,000. The cap is an annual income of $75,000 for an individual taxpayer and $150,000 for joint taxpayers.
For new electric vehicles, the Build Back Better bill proposes an increase in the tax credit from a maximum of $7,500 to a maximum of $12,500. This will, however, cover only vehicles manufactured in the U.S. and employing union labor. Vehicles must have a suggested retail price from the manufacturer of not more than $80,000. This will make SUVs, vans, and trucks eligible. The gross annual income cap for buyers is $250,000 for an individual taxpayer and $500,000 for joint taxpayers.
Much Room for Growth
In 2020, sales of electric vehicles globally comprised 4.6 percent of total new vehicle sales. The top 12 countries were all in Europe, from a 74.8 percent share in Norway to an 11.2 percent share in Belgium. China came in 13th with a 5.7 percent share. The U.S. had a two percent share and came in at 20th place behind Spain, Italy, Canada, South Korea, New Zealand, and Greece.
In the first half of 2021, the sales of electric vehicles grew by 168 percent from the previous year. It grew by 197 percent in China, 157 percent in Europe, and 166 percent in the U.S. In July 2021, sales of electric vehicles comprised almost five percent of total sales of light-duty vehicles in the U.S. That is almost twice the volume of sales in July 2020. Despite the increase, the U.S. still needs to catch up on electric vehicle sales and usage compared to the rest of the world.
Choosing an Electric Vehicle
Apart from choosing an electric vehicle that is eligible for tax credits, you must also check out its range for every charge. You can choose one with a lower range if you only drive short distances. If you go on long drives, opt for a model with the longest range. You must also find out the location of public charging stations in your area and map out your routes.
The most affordable electric car available in the U.S. is the Kandi K27 at only $17,499. With the federal tax credit, it will come to only $9,999. It seats four adults and has a range of 59 miles that is adequate for short-range driving. If you need a longer range, the Nissan Leaf S covers 149 miles for $31,600. Less the tax credit, it is only $24,100. If you are planning on buying a car, be forward-looking and opt for an electric vehicle.