How to Take Advantage of a Hybrid or Electric Car Tax Credit

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We know that hybrid vehicles offer substantial advantages in terms of reducing your reliance on gas and being environmentally conscious, but they can also save you money on your taxes. The government offers tax breaks on hybrid vehicles as an incentive for consumers to go green. If you have considered making the switch to a hybrid vehicle, then getting informed about the potential tax breaks is your next step. Read below for our guide on how to take advantage of tax breaks on hybrid vehicles:

How to get a tax break if you buy an electric or hybrid car

Step 1: Identify the models eligible for tax breaks. Search online to find a list of car models that qualify for the tax breaks. In addition to the list of cars that qualify, there will be a list of the maximum amount you can save on each model.
The U.S. Department of Energy offers a comprehensive list on current tax incentives. The current highest tax break amount is $7,500.
Step 2: Know the rules. Tax breaks on hybrid vehicles only apply to the original purchaser. If you choose to lease a car that qualifies for a tax break, the tax break would go to the manufacturer rather than you because they own the car.
If you purchase a car with a tax break of up to $7,500, you will not necessarily be seeing that much money applied. The tax break is good for up to $7,500, but it is also dependent on the amount of income tax you owe for the year. The tax incentive only applies to what you owe, so you won’t be getting extra money back.
Step 3: Read the fine print. There’s always fine print. Make sure you fully understand the rules and regulations before you commit to a hybrid vehicle based on the potential for a tax break.
To be eligible for the credit, your car must meet these requirements:
  • Made by a manufacturer (that is, not converted from conventional to electric)
  • Considered a motor vehicle by the Clean Air Act
  • Must have a gross vehicle weight rating (GVWR) of less than 14,000 lbs
  • Must be used mostly in the U.S.
  • Must be a new vehicle
  • Bought during or after 2010
  • Draws electricity from a battery of 4 kilowatt hours or more
  • Not intended for resale
  • Note: The federal tax credit does not apply to those who intend to resell their vehicle. The car must be for primary use in the United States. The IRS does hold the right to deny a claim for the tax credit should they deem it appropriate.
Step 4: Remember that the tax credits will expire. Only a finite number of tax credits are available. After 200,000 vehicles have been sold by a manufacturer, the government will no longer offer tax credits.
Time your purchase to make the most of tax incentives while they are still available.
Step 5: Claim your credit. Fill out Form 8936 if the electric car was bought for personal use or Form 3800 if it was a business purchase and add the credit to your regular tax return.
$7,500 is a strong incentive if you were already thinking of buying an electric or hybrid car. Know the pitfalls and details to watch for before you buy an EV and you should see some savings on your next tax return.

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