Hybrid cars are becoming conventional in countries like the United States. As you know, these expensive cars are subject to a tax credit. This has prompted a lot of people to ask if owners can get one for buying a used hybrid car. So, is it?
The federal hybrid car tax is available to buyers who purchase plug-in-electric cars in the United States. The credit was created by the Department of Energy. Consumers can receive a tax credit as high as $7,500 for each hybrid car purchased after December 1, 2009.
The credit remains as long as each manufacturer doesn’t sell more than 200 thousand hybrid cars in the United States. Therefore, the answer to the question above is no. The tax credit is available for only new hybrid cars.
How to Qualify For the Tax Credit
Based on the information released by the United States News and World Report and Credit Karma, the tax credit exist for both all-electric cars and plug-in hybrid electric cars, which are those that use gasoline and electric power. But, the automobile in consideration must be new and you have to drive t mostly within the United States.
If you intend to purchase an electric car, it is best to check the tax credit for the make and model. However, the tax credit for each hybrid car changes depending on the capacity of the car battery. In addition, the credit varies depending on the type of electric vehicle. For example, is the car a hybrid model or totally electric?
The U.S News and World Report report that you can get as much as $4,500 tax credit if you buy the plug-in Toyota Prius Prime hybrid hatchback. On the other hand, the 2019 Kia Niro electric vehicle gives you the complete $7,500 tax credit.
As each car manufacturer gets closer to selling 200 thousand electric cars, the credit starts to phase out. For example, General Motors electric cars formerly qualified for a tax credit of $3,750. But, the credit score dropped to $1,875 on October 1, 2019, and will terminate on March 31, 2020.
Also, Tesla stopped tax credit for its seven electric car models back in 2019. In general, the tax credit by make and model includes:
- 2013 -2019 Fiat 500e, $7,500
- 2014 – 2020 BMW i3, $7,500
- 2014 – 2017 BMW i8, $3,793
- 2014 Honda Accord, $3626
- 2020 MINI Cooper Hardtop, $7,500
- 2019 Land Rover Range Rover PHEV, $6,295, and so on.
How to Claim the Tax Credit
When you file your federal tax return for the year after buying a hybrid vehicle, you must add IRS Form 8936. If the process is too complicated for you, it a best to seek the help of a tax professional to assist you. Additionally, you can modify your tax return if you bought an electric vehicle in the past three years but didn’t claim the credit.
Tax credits for electric vehicles are nonrefundable. Therefore, you don’t get a refund for the excess amount, but it will eliminate your federal tax liability. Also, you can’t get a discount when you buy the car instead of a tax credit.
According to the U.S. Department of Energy, the tax credit is not accessible to those who lease an electric car. But, the dealer may reduce the monthly payment to pass along the tax credit savings. In addition, you can’t transfer the original tax credit on a preowned car. So only the person that purchased and registered the car when it was brand-new can receive the tax credit.
Even if the person didn’t claim the tax credit, it won’t be accessible to another buyer. For this reason, it is better to buy a brand-new electric vehicle than a preowned electric vehicle so you can receive the essential tax credit.
The Tax Credit From States and Other Sources
Although the federal tax credit for hybrid cars and natural gas vehicles gets the most attention, there are other state and regional inducements on cars that run on alternative fuel sources.
Most states in the United States have more than a dozen incentives for those that want to buy complete electric and plug-in hybrid vehicles. But, most of these programs only apply to businesses.
Some credits exist in terms of exemptions from fees and inspections. Consequently, others are nonmonetary incentives such as free parking and carpool lane access.
Retail buyers can receive a tax credit in form of rebates, fewer vehicle taxes, or reduced registration fees for purchasing an electric-powered vehicle from a qualified source. For example, California gives a cash rebate of $1,500 to those who purchase or lease brand-new electric cars.
The incentive doesn’t mean you won’t get the federal tax credit, and both incentives can cut down the cost of the car by as much as $9,000. Plug-in hybrid cars are slightly different because they come with smaller batteries and consume gasoline some of the time.
Therefore, incentives for hybrid cars in the state of California depend on the battery size. The reward can reach $1,500 under the state’s clean fuel reward program. It is best to find out available state and local incentives on hybrid cars before trying to buy them.
Also, some of the incentives won’t remain indefinitely. In some states, hydrogen fuel cell electric vehicles qualify for some incentives. If you want to have more information about current programs, check the website of the U.S. Department of Energy.
How Your Income Affects the Electric Vehicle Tax Credit
You must have a federal tax liability in the same year you buy an electric car or a hybrid car to receive the tax credit. Your tax liability must equal or surpass the amount of credit your want.
For example, if you owe $4,500 in federal taxes, you can only receive a credit of $4,500 even if the car qualifies for the complete tax credit amount (7,500). It is essential not to mistake your federal tax liability with the amount you write as your income tax.
Your income tax shows any amount withheld from your paycheck throughout the year. If you don’t understand the explanation, it is best to speak to a tax professional to assist manage your finances.
Federal Electric Vehicle Tax Credit and Leasing
It is good to lease an electric vehicle or plug-in hybrid car. Technology in the electric car sector is improving rapidly that even experts don’t have an idea of how much electric cars will be worth in the future.
With a lease, the value is kept aside, and you can get a car with the newest technology at the termination of your contract. However, you shouldn’t expect to get a federal electric vehicle tax credit.
Tax credit belongs to the vehicle’s titleholder. When leasing an electric car or hybrid car, the leading company is the titleholder. Therefore, they can price the value of the tax credit into the monthly payment of the lease. So you can get the tax credit in the form of less modern payments.
Electric Car Credits by Car Models
Presently, automakers offer electric cars tax credits. We shall discuss automakers that have models which qualify for the tax credit.
Tesla Tax Credit
The California-based elector car company Tesla was the first manufacturer to sell more than 200 thousand electric cars in 2018. They offered full $7,500 tax credit until Dec 31, 2018. The tax credit was reduced to $3,750 between Jan 1 to June 30, 2019.
The incentive was reduced further to $1,875 from July 1 to December 31, 2019. At the start of 2020, a federal tax credit for electric cars stopped being available for any Tesla vehicle. However, buyers of Tesla cars will qualify for other local, utility, and state incentives.
Nissan Tax Credit
Nissan is another car manufacturer to exceed the government’s 200 thousand electric car cap. Therefore, the 2020 Nissan Leaf is the only model in their collection that qualifies for a tax credit since it is yet to reach the 200 thousand sale cap.
However, more models of electric vehicles and plug-in hybrid car models are expected to flood the market in the next few months.
Toyota Tax Credit
Although Toyota is the leading manufacturer of conventional hybrid cars, they have years to go before their vehicles exceed the 200 thousand sale cap. The only hybrid car sold by the company at the moment is the 2020 Prius Prime.
But it will be joined by the RAV4 Prime, a plug-in version of the popular compact SUV. It is not hard to imagine more models from the company appearing in the next few years since most of the popular car types are redesigned by the company to hybrid cars.
Conclusion
The tax credit is available for consumers who intend to purchase plug-in electric vehicles in the US. However, you can only access it if you are the titleholder of the car. So buying a used hybrid car doesn’t qualify you for a tax credit.
But there are other incentives provided by states and local areas for consumers. It is best to check with the Department of Energy to see the credit available to each hybrid car buyer.