Electric Vehicle Tax Credits Are Ending for New Toyota Buyers
Updated on Apr 20, 2022 · 4 min read
It seems the government incentive to promote cleaner driving puts certain automakers at a disadvantage. Toyota has just reached the federal EV tax credit cap with the sale of 200,000 units. This means that buyers looking for an electric or hybrid Toyota model will no longer qualify for reimbursement when it’s time to file their taxes.
Tesla and General Motors have already surpassed this mark. Nissan is only 30,000 vehicles away from a similar fate. Manufacturers that were early adopters of hybrid and electric technology can no longer count on the EV tax credit to stimulate sales.
What is the EV tax credit?
Although often advertised as a discount, car buyers are still required to pay the full sales price on their electric vehicle. The rebate comes in the form of a credit that is applied to your refund at the following tax season. As reminded by Kelley Blue Book, used and leased models do not qualify.
The EV tax credit applies to vehicles that are charged from an external source and are equipped with battery packs. These must have a capacity of 4 kWh or more. This includes all battery-electric vehicles, plug-in hybrids, and hydrogen fuel-cell cars.
The base credit is $2,500. An additional $417 per kWh is applied above 4 kWh and maxes out at $7,500 altogether. The full credit is only available on the first 200,000 vehicles built by manufacturers. It gradually drops and expires roughly one year later.
What does this mean for Toyota customers?
Because Toyota has just reached the milestone of 200,000 electric vehicle sales, customers will no longer qualify for the EV tax credit when purchasing from the company.
Its standard Prius hybrid model was never eligible due to the fact that it could not be plugged in. However, the Toyota Prius Prime did qualify thanks to its 8.8 kWh battery with plug-in capability and electric range of 25 miles. The RAV4 Prime model allowed buyers to claim the full $7,500 EV tax credit due to its larger 18.1 kWh battery and electric range of 42 miles.
The automaker did have a fully electric RAV4, but the model was discontinued due to poor sales. It’s releasing the bZ4X, an all-electric SUV with 250 miles of range, in Summer 2022. Between Toyota and its luxury brand Lexus, the company is planning to offer 30 fully electric vehicles by the year 2030.
The future of EV tax credits
According to ABC News, President Biden’s Build Back Better bill, currently stalled in Congress, would provide buyers with additional EV tax credits until 2026. Afterwards, only electric vehicles made in the U.S. would qualify. The bill also proposes increasing the base credit to $4,500 if the vehicle is built in a unionized plant. Only GM, Ford, and Stellantis meet this criteria.
Certain critics, like Toyota, are lobbying to level out the playing field. A lack of EV tax credits hinders automakers from shifting to vehicles that reduce emissions further. Other possibilities include a $2,500 incentive for used EV purchases, applying the credit at the point of sale, and raising the cap to 600,000 vehicles.
In the meantime, buyers can explore other options to help finance their new electric vehicle purchase. Many state and local governments offer incentives, as well as electric utility companies. Check out the U.S. Department of Energy’s list of vehicles that qualify for the current EV tax credit, and their corresponding deductions.
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