Electric cars became increasingly popular over the last few years. People were looking for ways of reducing their carbon footprint while saving money on fuel. The question of whether electric cars qualify for tax deductions arises frequently. This article examines the tax benefits associated with electric cars.
Electric Cars – Federal Tax Credits
Tax credits are offered for the purchase of electric vehicles by the Federal Government. These tax credits are available to both new cars and used electrics and can reduce the cost of a vehicle significantly. Tax credits vary in amount depending on the car model, battery size, and other factors.
For example, the 2021 Tesla Model S & Model X qualify for a $1,875 tax credit, while the 2021 Chevrolet Bolt qualifies for a $7,500 tax credit. The tax credits for each vehicle start to reduce once the manufacturer has reached 200,000 eligible vehicles sold in the US.
Electric Cars incentives at the local and state level
In addition to the federal tax credit, many local governments, and states offer incentives that encourage the purchase of electric vehicles. These incentives could include tax incentives, rebates, or other financial incentives.
California, for example, offers a rebate worth up to $2000 for the purchase of a brand-new electric car. Colorado also offers a tax incentive of up to $5,000. Georgia and Hawaii allow electric cars to park for free and use the HOV lane.
Electric Cars Tax Deductions
If you use a car to conduct business, you could qualify for tax deductions. The IRS allows you the option to deduct your electric car expenses using either a standard mileage rate or an actual expense.
If you use the standard rate of mileage, you may be able to deduct 58 cents per mile if you are using an electric vehicle for business in 2021. If you opt to deduct actual expenses, then you can include depreciation as well as lease payments, insurance, and maintenance.
Electric Cars – Tax Deductions Limitations
Electric cars can offer significant tax benefits. However, there are certain limitations. First, the federal electric car tax credit is limited to only the first 250,000 eligible vehicles per manufacturer. Once a manufacturer reaches that threshold, the credit is phased out until it disappears.
Second, electric cars’ tax benefits are subject to change. Congress can change or remove tax credits and incentives anytime, which could affect the financial benefits of electric cars.
Tax deductions for electrical cars are available only to those individuals who itemize. If you only take the standard deductible, you will not be able to claim any tax deductions.
Electric cars are eligible for several tax breaks, including federal credits, state, local, and business tax deductions. These benefits reduce the cost of an electric car, making it more attractive for most people.
It is still important to note that the tax benefits for electric vehicles are subject to change. These are influenced by factors like manufacturer thresholds, itemized deductions, and other factors. Tax professionals can help you determine the specific tax benefits for your situation.