Skip to contents
Clean Vehicles

A Guide to U.S. Electric Car Tax Credits and Rebates

A Ford dealership in Richmond, California, U.S., on Wednesday, Jan. 26, 2022. U.S. auto sales will climb just 3.4% this year to 15.4 million cars and trucks as the semiconductor shortages continue to constrain vehicle inventory, auto dealers predict.

(Bloomberg) —

As the average price of gas continues to surge, more U.S. consumers might be considering buying an electric car. According to auto club AAA, from May 2 to May 6 the national average for a gallon of regular gasoline increased by five cents to $4.24. Russia’s invasion of Ukraine also has pushed prices higher

The conventional wisdom has been that plugging in and charging up a battery-powered car will cost an owner less than filling up a gas tank. But EVs are more expensive —  many models on the market in the U.S. are beyond the means of the average consumer. The cheapest Tesla, a Model 3, starts at $47,000; the Ford Mach-E has a similar base price but actual sales have run above the Manufacturer’s Suggested Retail PriceFord’s F-150 Lightning, the electric version of America’s best-selling vehicle of the past 40 years, has drawn a ton of interest — and deposits — given a somewhat more competitive starting point: just under $40,000.

Those are big numbers but not necessarily deterrents. Anecdotally, dealers report an increase in prospective buyers entering showrooms specifically to explore electric or hybrid models. Some are “just wanting to look,” says James Morrell, the owner of the Destination Kia dealership in Albany, New York. That curiosity has recently converted into more EV sales. Morrell’s dealership sold 16 Kia EV6s — a new, fully electric sport utility vehicle that hit showrooms in February with a starting price, for the “Light” model, of $40,900 — in the last two weeks of March. “That’s a lot of electric vehicle sales in a short period of time,” he says.

Federal tax deductions for qualifying purchases can meaningfully change a buyer’s math. Add to that any applicable state rebates or credits from a power utility and before you know it, you’ve reduced your cost, potentially by several to many thousands of dollars. Dealers have become more practiced in explaining the options available to help lower the cost. Prospective shoppers are catching on — they’re coming in having done their research, says Morrell.

What should you know about credits and rebates before you buy? Our guide below lays out the key points.

1. Federal income tax credit up to $7,500*
Currently, $7,500 is the maximum amount available to buyers of new fully electric or plug-in hybrid cars (leasing only qualifies for the leasing company). The credit is a deduction on your federal income tax return for the calendar year in which you purchased the car. Let your accountant know you bought a new EV and be sure she knows about the deduction.

As for the “up to” qualifier: You’ll get the deduction only if you owe taxes. Say your tax bill comes to $8,000. Depending on which car you buy, you can reduce that bill by up to $7500. If you owe taxes totaling less than the maximum credit allowed, say $3,000,  you can deduct what you owe, but not more.

2. Battery size matters

Credits also are based on the size of the most important part of your new EV — the battery. While most current plug-in models command the $7,500 maximum, hybrids typically earn a smaller credit. If, for example, you’ve decided on a Toyota Prius Prime Plug-In Hybrid, your maximum rebate will be about $4,500.

To see where a particular model stands, check the Internal Revenue Code Section 30D.

3. Not all EV models qualify

The federal credit is available until a company sells 200,000 of a particular model; then the credit is phased out. Tesla models are no longer eligible for a tax credit; General Motors also has reached the threshold. Always ask a dealer whether the federal tax credit is available for the model you’re considering. 

Toyota, as Bloomberg reported earlier this week, is almost there. Demand for Toyota’s plug-in hybrid vehicles has steadily grown, especially as gasoline prices surpassed $4 a gallon. Cumulative sales of Toyota’s eligible vehicles came to 183,000 as of the end of 2021, according to analysis by BloombergNEF. The company reported another 8,421 plug-in hybrid and electric car sales in the first quarter.

4. State awards / rebates add up

California, as the state with the largest number of electric cars on the road, not surprisingly has a wide range of electric car rebates, all detailed on the website of the California Air Resources Board (CARB). The heftier awards that are part of the California Clean Vehicle Rebate Project are income eligible, among other requirements.

Programs and offers vary from state to state. In New York, the “Drive Clean” rebate of up to $2000 is given for any new EV purchase or lease. There are two requirements: you must keep the vehicle for a minimum of three years and agree to do so; and you must be a resident of the state. 

5. Local utilities and/or energy departments want to help

Check with your utility provider about any incentive or rebate. It might offer a discount on an at-home charger, which on average costs about $700. The bigger expense for that is running a 220 volt line that will power your plug. In Utah, Rocky Mountain Power offers its residential customers a rebate of up to $200 for buying and installing a Level 2 charger. 

 6. Resources list

Bookmark these websites for answers to your questions — and check back here at Bloomberg Green and Hyperdrive for our coverage on the ways U.S. consumers are increasingly embracing battery-powered cars.

*President Joe Biden has proposed increasing the federal credit to up to $12,500, for vehicles made by union shops. But he faces strong opposition to the measure. West Virginia Senator Joe Manchin, a primary antagonist of many of the president’s infrastructure and transportation plans, this week rejected Biden’s proposal, calling it ludicrous.

–With assistance from Keith Laing.

To contact the author of this story:
Dimitra Kessenides in New York at dkessenides1@bloomberg.net

© 2022 Bloomberg L.P.

Advertisement