What Electric Car Tax Incentives are Still Available in 2021?

On average, it costs half as much to dive an electric car than a gas car. Over time, electric cars will save you a lot of money through lower fuel costs, which is an important concern considering that the average US household spends 1/5th of its total expenditures on transportation. Additionally, plug-in electric vehicles cut down on carbon emissions, and ultimately help our planet.

The one factor holding many people back from choosing electric vehicles (EVs) is the initial cost. While they save you money in the long term, they are almost always more expensive upfront than a traditional car. Luckily, there are both federal and state incentives for buying an EV that can help reduce the financial burden.

Besides cost and tax incentives, there are a few other things you should consider before making the switch to all-electric car. Check out our article on how to prepare for buying an electric car.

Let’s review some of the most widely available incentives and how to find out about your local electric car incentives.

Federal Electric Car Incentive

There is a federal EV tax credit program that offers up to $7,500 depending on your situation. The type of vehicle that you choose and your tax circumstances impact the amount of incentive that you qualify for. The capacity of the battery used to power the vehicle impacts the federal tax credit you can get. Electric and plug-in hybrid cars purchased after 2010 are eligible for the federal tax credit.

Since the federal tax credit is based on the capacity of the vehicle’s battery pack, the original cost of the vehicle does not matter. A more expensive EV will not necessarily offer a higher federal tax credit than a less expensive one.

Also Read: Best Electric Car Deals Right Now

Since the Federal tax credit is not a tax rebate, you can only claim the credit up to your tax liability in the year you claim the credit. The tax credit lowers the federal tax liability on your income for that year.

You can view all qualifying vehicles for the Federal EV Tax Credit at fueleconomy.gov. However, consult a tax professional to review your specific tax situation.

Qualifications for the Federal EV Tax Credit

There are some specifications for which vehicles meet the criteria for the federal tax credit. For a vehicle to be eligible for the federal government, it must:

• Be a road-going vehicle.
• Be purchased. If you lease a vehicle, you cannot qualify for the federal EV tax credit.
• Charge from an external source.
• Contain a battery pack with a capacity of 4 KW hours or more.
• Be 100% battery-electric or have a plug-in hybrid power chain.
• Purchased as a new car from a factory with electrified powertrains.
• Be intended for use on US roads.
• Not be ethanol, diesel, or fuel-cell.

Mass-produced full-electric vehicles sold in the US qualify for the entire $7,500 tax credit. However, Tesla and General Motors already exceeded the sales volume cap of the federal program, so you will not be able to get the entire federal credit.

As for plug-in hybrids, most qualify for a federal tax credit between $3,500 and $6,300. However, a few qualify for the full federal EV tax credit including:

• 2020 and 2021 Toyota Rav4 Prime
• 2020 Chrysler Pacifica Hybrid
• 2020 Honda Clarity PHEV

State EV Incentives

In addition to the federal tax credit, electric vehicles may also qualify for local and state incentives. Of course, the amount and type of incentives available to you depend on the programs offered in your state. Many times, the state incentives can be combined with the federal incentive program for a $10,000 savings on the out-of-pocket cost of purchasing an EV.

Some of the potential incentives you can get from your state or local government include:

• Grants
• Tax incentives
• Loans and leases
• Rebates
• Exemptions

You should check for your local incentives before purchasing the EV to make sure you know all of your options and the timelines of the incentives. While the federal tax credit does not apply when leasing vehicles, there are some state incentives that do. For example, Colorado offers a $2,000 tax credit for the lease of a new EV.

Utility Incentives

Many utility companies and communities also provide EV incentives. You may be able to earn cash back, credits, or a discounted rate plan for purchasing an electric car. Many states, like Arizona, California, and Hawaii have electric companies that offer reduced electricity rates based on the time-of-use for EV owners.

Buying an EV is a great investment for your wallet and our planet. There are many different types of incentives that help reduce the upfront cost of buying an electric vehicle. Make sure to determine the total federal, state, and local incentives that you can qualify for before you purchase an EV using the resources above.

Incentives by State

In the table below, we summarize each state’s available rebates, tax credits, and utility incentives when purchasing an electric vehicle.