Federal Car and Hybrid Car Tax Credit Details: An In-Depth Look at the Benefits and Requirements of Tax Credits for Eco-Friendly Vehicles
The world is fast moving towards renewable energy and eco-friendly solutions to combat the harmful effects of pollution and climate change. In line with this pursuit, several governments across the world, including the US, have taken proactive steps towards incentivizing the use of hybrid and electric vehicles. One of the most effective measures is the federal tax credit policies in place, encouraging individuals and businesses to invest in eco-friendly cars. In this article, we will discuss the various details of the federal car and hybrid car tax credit program, including the benefits, eligibility requirements, and the most recent updates on the topic.
Overview of the Federal Car and Hybrid Car Tax Credit Program
The US government’s tax credit program aimed at promoting eco-friendly vehicles is the Alternative Motor Vehicle Tax Credit (AMVTC). The AMVTC provides tax incentives to individuals and businesses who purchase or lease new hybrids, electric vehicles (EVs) or plug-in hybrids (PHEVs) from a qualifying manufacturer. The credit varies based on the size of the battery used in the vehicle, the year of purchase, and the vehicle model’s general capacity.
The tax credit ranges from $2,500 to $7,500 for the purchase or lease of eligible plug-in hybrid and electric cars. This credit cannot exceed the vehicle’s total sticker price, and once it reaches the maximum amount, it is phased out. The credit is applicable to both new and used vehicles (if the vehicle has not already been claimed,) and both purchased and leased vehicles qualify. However, the lessee is only eligible for the credit if the vehicle is used predominantly in the business or trade of the lessee.
Apart from the tax credit, purchasing an eco-friendly hybrid or electric vehicle also offers significant savings on fuel costs that can make a considerable difference. According to the US Department of Energy website, owning an electric car would save around $770 per year on average, depending on vehicle usage.
Eligibility Requirements for AVMTC credit
The Alternative Motor Vehicle Tax Credit (AVMTC) has several eligibility requirements that must be met to qualify for the tax credit. Some of the primary requirements are as follows:
Vehicle Manufacturer
The vehicle must be purchased or leased new from a qualified manufacturer. The eligible manufacturers are those that sell fewer than 200,000 vehicles per annum as of 2021. Vehicles purchased from manufacturers that have sold more than 200,000 vehicles are no longer eligible for the credit. Currently, Toyota, Honda, Tesla, and General Motors are among the manufacturers whose vehicles are no longer eligible.
Type of Power
The eligible vehicles must be new, and their power sources must meet the following criteria:
– Battery-electric vehicle (BEV)
– Plug-in Hybrid Electric Vehicle (PHEV)
– Fuel Cell Vehicle (FCV)
– Electric vehicle with a range extender (EREV)
– Compressed natural gas (CNG) vehicle
– Liquefied natural gas (LNG) vehicle
– Liquid petroleum gas (LPG) vehicle
The credit varies according to the type of power source and the size of the battery. For BEVs and FCVs, the full credit of $7,500 is available. PHEVs are eligible for varying credits, ranging from $2,500 to $5,000, depending on the battery size, while all other eligible vehicles have a base credit of $2,500.
Battery Size
The number of tax credits a vehicle is eligible for further depends on the size of its battery capacity. To qualify for the full credit, a vehicle should have a battery capacity of at least 16 kWh, while those with smaller battery capacities would be eligible for a proportionate amount.
For example, an all-electric vehicle with a 16-kWh battery or more is eligible for a $7,500 tax credit, while a comparable all-electric vehicle with a smaller battery gets a lower credit. Additionally, the tax credit reduces by 50% for the first six months of the quarter after the manufacturer has sold 200,000 qualifying hybrid/electric vehicles.
Purchase or Lease Time
The vehicle must be purchased or leased after December 31st, 2005, and before December 31st, 2022, to be eligible for the credit. The timeline for this credit coincides with the expiration of the last infrastructure bill.
Federal Tax Credit for Electric Vehicles and Plug-In Hybrids
As mentioned earlier, both electric vehicles and plug-in hybrids qualify for the Alternative Motor Vehicle Tax Credit. However, the eligibility requirements and amounts of the credit vary by vehicle design.
For Electric Vehicles
The tax credit amount for a qualified electric vehicle ranges from $2,500 to $7,500, depending on the battery capacity. The vehicles must be new and purchased or leased after December 31st, 2009.
In addition, the vehicle’s battery must have a capacity of at least 4 kilowatt-hours and must be able to propel the car for at least 10 miles on a single charge. The credit amount is on a per-vehicle basis, and the amount reduces when the manufacturer sells a specific number of qualifying vehicles starting from their 200,000th EV.
For Plug-In Hybrids
The tax credit for plug-in hybrids also varies depending on the battery size and the model year. Plug-in hybrid vehicles with sufficient battery capacity that fall within the 200,000-unit sales limit are eligible for credits between $2,500 and $5,000. However, other plug-in hybrids with smaller batteries that do not meet the minimum specific EV range are not eligible for the tax credit.
Recent Updates on Federal Car and Hybrid Car Tax Credit
The federal hybrid car tax credit has been modified several times over the years, with the recent change coming in December 2020. As a part of the new pandemic relief package, the US Congress extended several tax credits, including the Alternative Motor Vehicle Tax Credit, till December 31st, 2021. This means that individuals and businesses can still claim the credit on qualifying purchases made until the end of 2021.
Moreover, as of March 2021, Oregon’s state residents can get an additional incentive for electric vehicle purchases that could amount to $5,000. The Clean Vehicle Rebate Program provides rebates for eligible electric and plug-in hybrid electric vehicles; however, there are some restrictions. The rebate amount reduces as more people purchase such vehicles. When 50,000 rebates are initiated, and 90% of them are claimed, the rebate will end.
Conclusion
In conclusion, the Alternative Motor Vehicle Tax Credit has been an effective incentive to induce people to transition to eco-friendly vehicles. It has motivated many people to adopt electric and hybrid vehicles, helping to reduce carbon emissions and promote healthier and cleaner air. We hope that this detailed article helped you understand the benefits, eligibility requirements and recent updates on the federal car and hybrid tax credit program. It is an exciting time for the automotive industry, and tax credits can help us move one step closer towards a greener and sustainable future.
What is the Federal Car Tax Credit?
The Federal Car Tax Credit is a program implemented by the Federal Government of the United States to provide a benefit to those consumers who purchase fuel-efficient or hybrid vehicles. The program is implemented by the United States Department of Energy to ultimately decrease our reliance on foreign oil and to mitigate the negative externalities imposed by the widespread use of oil.
The Federal Car and Hybrid Tax Credit will reduce the total amount of income tax are required to pay. So, for example, if you owed $8,000 in federal income tax, a $1,500 tax credit would reduce your total amount owed to $6,500. The Federal car Tax Credit differs from a standard tax deduction, which reduces the amount of income for which you are formally taxed. So, for example, if your taxable income is $35,000, a $3,000 tax deduction would reduce your income to $32,000.
Below you will find all information concerning the federal car and hybrid tax credit for vehicles purchased prior to December 31st of 2010:
Federal Car and Hybrid Tax Credit for Electric Vehicles:
Requirements for Electric Cars:
To be eligible for the Federal Car and Hybrid Tax Credit by your vehicle’s manufacturer, your vehicle must adhere to the following provisions:
• The vehicle must be made by a manufacturer
• The vehicle must be treated as a motor vehicle and must adhere to all the provisions outlined in title II of the Clean Air Act.
• The vehicle must have a gross vehicle rating of no more than 14,000 lbs.
• The vehicle must be propelled to a significant extent by an electronic motor; this motor must draw its electricity from a battery that has a capacity of no less than 4 kilowatt hours. The battery must also be capable of being recharged from external sources of electricity.
• The vehicle must be new.
• The vehicle must be purchased by the taxpayer applying for the Federal Car and Hybrid Tax Credit for Electric Vehicles.
• The vehicle must be used predominantly in the United States
• The vehicle must be placed in service by you, the taxpayer, during or subsequent to the 2010 calendar year.
If your vehicle meets these provisions, you must fill out Form 8936 (The Qualified Plug-in Electric Drive Motor Vehicle Credit Form) to claim your tax credit. This form may be filed with your Form 1040.
Federal Car and Hybrid Tax Credit for Alternative Fuel Vehicles:
To be eligible for the Federal Car and Hybrid Tax Credit for your newly-purchased Alternative Fuel Vehicle, the car must meet the following requirements:
• The Alternative fuel vehicle must utilize the following fuels to propel itself: compressed natural gas, liquefied petroleum gas, hydrogen, liquefied natural gas or any other liquid comprised of at least 85% methanol by volume.
• Your vehicle also must commence with you, the taxpayer.
• The vehicle must be acquired for use or lease by you, the taxpayer. The Federal Car and Hybrid Tax Credit is only available to the original purchase of an alternative fuel vehicle.
• The vehicle must be driven predominantly in the United States
If your vehicle meets these provisions, you must fill out Form 8910 (The Alternative Motor Vehicle Credit Form) to claim your tax credit. This form may be filed with your Form 1030. Additionally, some local or state governments may provide additional incentives for newly-purchased alternative fuel vehicles.
Federal Car and Hybrid Tax Credit for Diesel Fuel Vehicles:
To be eligible for the Federal Car and Hybrid Tax Credit for your newly-purchased Diesel Fuel Vehicle, the car must meet the following requirements:
• The original use of the car must commence with the taxpayer
• The car must be acquired for use or lease by you, the taxpayer, and not for resale. The Federal Car and hybrid Tax Credit for Diesel fuel vehicles is only offered to the original purchaser of a new qualifying diesel vehicle. If the vehicle is leased to a consumer, the leasing company may claim the tax credit.
• The diesel-fueled vehicle must be used primarily in the United States.
• The vehicle must be placed in service after December 31st of 2005 and must be purchased before December 31st, 2010.
If your vehicle qualifies, you must fill out Form 8910 (The Alternative Motor Vehicle Credit Form) to claim your tax credit. This form may be filed with your Form 1030. Additionally, some local or state governments may provide additional incentives for newly-purchased alternative fuel vehicles.
Federal Car and Hybrid Tax Credit for Hybrid Vehicles:
Hybrid vehicles placed into service or purchased before December 31st of 2005 may be eligible for the Federal Car and Hybrid Tax Credit for an income tax credit of up to $3,500. To secure this tax credit your newly-purchased Hybrid must meet the following requirements:
• The original use of the Hybrid must commence with you, the taxpayer.
• The hybrid must be acquired for use or lease by you, and not for resale. The Federal Car and Hybrid Tax Credit is only offered to original purchasers of new qualifying Hybrid vehicles. If the Hybrid is leased, the leasing company is free to claim the Federal Car and Hybrid Tax Credit.
• The Hybrid vehicle must be used primarily in the United States.
• The Hybrid vehicle must be placed in service by you following the 31st of December 2005 and must be purchased on or before the 31st of December 2010.
If your vehicle qualifies, you must fill out Form 8910 (The Alternative Motor Vehicle Credit Form) to claim your tax credit. This form may be filed with your Form 1030. Additionally, some local or state governments may provide additional incentives for newly-purchased alternative fuel vehicles.
