How Does the Federal Tax Credit for Electric Cars Work?

If you have been considering upgrading your East Greenwich-area commute with an exciting new luxury EV like the BMW i4 or BMW iX, you may be eligible for a tax credit from the federal government. How does the federal tax credit for electric cars work? The federal tax credit starts at a minimum of $2,500 and can go up to $7,500, depending on the vehicle’s traction battery capacity and gross vehicle weight rating. This incentive can help to offset the BMW i4 price or BMW iX price, making the purchase of an EV even more attractive. Find out which models qualify for this electric car tax credit and if you can enjoy this incentive in this guide from the finance team at BMW of Warwick!

Which Models are Applicable for this Electric Car Tax Credit? 

You may be able to take advantage of the electric car tax credit if you buy an eligible new EV after December 31, 2009. In addition to the model being new, a qualifying EV also needs to meet the following criteria:

• Draws propulsion using a traction battery that has at least 5 kilowatt-hours (kWh) of capacity
• Uses an external source of energy to recharge the battery
• Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
• Meets specified emission standards 
• Has to be mostly driven in the United States

This online EV tax credit and exemptions tool can provide you with an estimate of the credit for the model that you’re considering. If you are interested in a plug-in or battery EV, you will need to keep in mind that the model has to be built by qualified manufacturers in order to earn the maximum electric car tax credit of $7,500. The model you choose also needs to have a battery pack that is rated for at least 4 kWh of energy storage and can be recharged from an external source. 

Am I Eligible for the Federal Electric Car Tax Credit? 

It is important to remember that this tax credit is only available if you buy the vehicle. If you lease an EV, the tax credit will go to the lending institution as they technically own it. 

Once you’re set on the EV you wish to purchase, you’ll need to consider how much you will owe in income tax for that year. This amount is key because it caps how much of the tax credit you can get. For example, if you buy an electric model eligible for the full $7,500, and you owe $3,000 in income tax, then you can only earn $3,000 of the credit. Similarly, say if that model is only eligible for $1,500, then you will earn only $1,500 instead. In other words, you can only earn the full amount if you owe at least $7,500 in income tax the year you bought your qualifying EV model. 

You should also note that you cannot pass on the tax credit to someone else even if you decide to sell your EV. Only the original registered owner of an eligible model can claim this credit, so if you are buying a used EV model, you won’t be able to access the electric car tax credit. 

How Long Will the Federal Electric Car Tax Credit Be Available? 

The federal government has put a limit on how long the electric car tax credit will be offered. Once a manufacturer has sold 200,000 eligible plug-in electric models or EVs, the credit will phase out after the second quarter. Because of this limit, you won’t be able to claim this credit on some models from manufacturers that have already reached this limit. For example, Tesla and General Motors (GM) EVs are no longer qualified for the credit. It’s a good idea to review this list of qualifying manufacturers from the IRS to see if the EV you are considering is eligible for the tax credit. 

Save on a BMW EV Today in Warwick! 

How does the federal tax credit for electric cars work? The guidelines are fairly straightforward, but if you have any questions, please feel free to contact us. Meanwhile, check out our BMW i4 vs. iX comparison to see which one of the dynamic EVs is the best fit with your Providence or Cranston driving needs. Our knowledgeable sales associates will also be happy to fill you in on the BMW 14 and BMW iX range, features, and more, so come see us today!