Tax credits for qualified plug-in electric vehicles make their lofty cost more palatable

Auto manufacturers have significantly increased their offerings of passenger autos that are propelled solely or significantly by electric power. Plug-ins typically require the buyer to pay a premium because of the extra hardware and R&D involved, but the availability of a federal income tax credit may make their purchase more palatable. This article reviews the rules that apply and shows which autos from well-known manufacturers are credit-eligible according to the latest IRS data.

Basic requirements: Under Code Sec. 30D(a), a taxpayer can claim a tax credit for each new qualified plug-in electric drive motor vehicle (abbreviated as a qualified vehicle in this article) placed in service during the tax year. The credit is claimed on Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit).

A qualified vehicle is one that (Code Sec. 30D(d)(1)):

Is a motor vehicle, namely a vehicle manufactured primarily for use on public streets, roads and highways (not including a vehicle operated exclusively on a rail or rails), that has at least four wheels.

Is treated as a motor vehicle for purposes of title II of the Clean Air Act.

Has a gross vehicle weight rating (GVWR) of less than 14,000 pounds.
Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of at least 4 kilowatt (kw) hours, and is capable of being recharged from an external source of electricity.

The taxpayer must be the original user of the vehicle, which must be used predominantly in the U.S. (Code Sec. 30D(f)(4)), and must have acquired it for use or lease and not for resale. (Code Sec. 30D(d)(1))

Amount of the credit: The amount of the credit for a qualified vehicle is the sum of: (1) $2,500; plus (2) for a vehicle that draws propulsion energy from a battery with not less than five kw hours of capacity, $417 for each kw hour of capacity in excess of 5 kw hours, but not in excess of $5,000. Thus, the maximum credit is $7,500, regardless of weight. (Code Sec. 30D(b)) Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.

The credit (as computed above) phases out beginning in the second calendar quarter following that in which a manufacturer sells its 200,000th plug-in electric drive motor vehicle for use in the U.S. after 2009 (50% credit reduction in second and third quarter; 75% in fourth and fifth quarter; 0 credit allowed thereafter). (Code Sec. 30D(e))

Credit amounts for qualified vehicles: Following is a list of the credit amounts for qualified vehicles that are autos and are manufactured by well-known companies, using the latest data published by IRS (model years are in parentheses):

…Audi A3 e-tron (2016-2017), $4,502
…Audi A3 e-tron ultra (2016), $4,502
…BMW i3 Sedan with Ranger Extender (2014-2017), $7,500
…BMW i3 Sedan (2014-2017), $7,500
…BMW i8 (2014-2017), $3,793
…BMW X5 xDrive40e (2016-2018), $4,668
…BMW 330e (2016-2018), $4,001
…BMW i3 (60Ah) Sedan (2017), $7,500
…BMW 740e (2017), $4,668
…BMW 530e (2018), $4,668
…BMW 530e xDrive (2018), $4,668
…BMW 740e xDrive (2018), $4,668
…MINI Cooper S E Countryman ALL4 (2018), $4,001
…FCA North American Holdings, Fiat 500e (2013-2017), $7,500
…Chrysler Pacifica PHEV (2017), $7,500
…Ford Focus Electric (2012-2017), $7,500
…Ford C-MAX Energi (2013-2017), $4,007
…Ford Fusion Energi (2013-2018), $4,007
…General Motors Cadillac ELR (2014, 2016), $7,500
…General Motors Cadillac CT6 PHEV (2017), $7,500
…General Motors Chevrolet Volt (2011-2018), $7,500
…General Motors Chevrolet Spark EV (2014-2016), $7,500
…General Motors Chevrolet Bolt (2017), $7,500
…Kia Soul Electric (2015-2017), $7,500
… Kia Optima PHEV (2017), $4,919
…Mercedes-Benz smart Coupe/Cabrio EV (2013-2016), $7,500
…Mercedes-Benz B-Class EV (2014-2017), $7,500
…Mercedes S550e PHEV (2015-2017), $4,043
…Mercedes-Benz GLE550e 4m PHEV (2016-2017), $4,085
…Mercedes-Benz C350e PHEV (2016-2017), $3,000
…Mitsubishi i-MiEV [Electric Vehicle] (2012, 2014, 2016, 2017), $7,500
…Nissan Leaf (2011-2017), $7,500
…Porsche 918 Spyder (2015), $3,667
…Porsche Panamera S E Hybrid (2014-2015), $4,752
…Panamera 4 E-Hybrid (2018), $6,670
…Porsche Cayenne S E-Hybrid (2015-2018), $5,336
…Tesla Roadster (2008-2011), $7,500
…Tesla Model S (2012-2017), $7,500
…TeslaModel X (2016-2017), $7,500
…Tesla Model 3 Long Range (2017), $7,500
…Toyota Prius Prime Plug-in Hybrid (2017), $4,502
…Toyota Prius Plug-in Electic Drive Vehicle (2012-2015), $2,500
…Toyota RAV4 EV (2012-2014), $7,500
…Volkswagen e-Golf (2015-2017), $7,500
…Volvo XC90 or XC90 Excellence (2018), $5,002
…Volvo XC60 (2018), $5,002
…Volvo S90 (2018), $5,002
…Volvo XC-90 T8 Twin Engine Plug in Hybrid (2016-017), $4,585

State deductions can further drive down the cost of an electric vehicle. Residents of some states can get state income tax credits, rebates, or reduced vehicle taxes and registration fees for buying or leasing electric vehicles.

References: For credit for new qualified plug-in electric drive motor vehicles, see FTC 2d/FIN ¶ L-18031; United States Tax Reporter ¶ 30D4.

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