Electric Vehicle Tax Credit Explained

Rhythm Energy on Friday, December 3, 2021
Blog Hero: Electric Vehicle Tax Credit Explained

Electric vehicles (EVs) can be expensive compared to traditional internal combustion engine vehicles. However, when you compare total cost of ownership including the savings you get from no gas fill-ups and lower maintenance costs, and the potential financial incentives from the federal government and local rebate programs, electric vehicles can be more in reach than you think.

How Does the Federal Electric Car Tax Credit Work?

The United States government is spearheading the transition to electric vehicles by offering federal tax credits. In fact, with the federal electric vehicle income tax credit, you could qualify for up to $7,500 back, depending on the make and model of electric vehicle you buy. But there are a few criteria that the vehicle must meet in order for you to qualify:

  • The electric vehicle must have plug-in capabilities. Therefore, standard hybrid cars do not qualify.

  • The battery capacity must be a minimum of 4 kWh.

  • The car must be purchased brand-new and direct from the manufacturer.

  • The maximum gross vehicle weight must be 14,000 pounds.

  • The car should be driven primarily in the United States. Shipping the car to another country may cause you to lose eligibility for the tax credit.

  • The electric vehicle may not be purchased with intent to resell—you should be buying the car to drive yourself.

The final rebate amount will depend on the battery capacity. At the minimum battery size of 4 kWh, the federal tax credit would amount to $2,500. The incentive increases by $417 with each added kWh, to a maximum of $7,500. A car with a battery capacity of at least 16 kWh will receive the full $7,500 federal tax credit.

Do You Receive the Federal Tax Credit Right Away?

Unfortunately, the federal tax credit is not an immediate discount on the purchase price. You will still have to pay full price for the electric vehicle at the time of purchase. The benefit is issued as a credit that reduces your tax liability for the year. You will not receive a check for any excess credit—if you are eligible for a credit of $7,500 and your tax bill is $5,000, then you will only receive $5,000 as a credit. If you owe $10,000 in taxes, then the federal tax credit will reduce your bill to $2,500.

Do All Electric Vehicles Qualify for the Tax Rebate?

If the vehicle meets the criteria outlined above, then it likely qualifies for the tax credit.

But it is important to understand that government monitors the car models for which the tax credits are used. Once a company has sold 200,000 qualifying electric cars, new purchases of that manufacturer are no longer eligible for the incentive. As of 2021, only Tesla and General Motors have hit this threshold, so you will be unable to receive the credit if you purchase a vehicle that was manufactured by these companies. Nissan is close to hitting the 200,000 mark, but prospective LEAF buyers still have a chance to claim the credit. BMW, Ford, Hyundai, and other manufacturers still have plenty of tax credits left to hand out. Eligible car models include:

  • Audi eTron, eTron Sportback

  • BMW i3

  • Hyundai Ioniq EV

  • Kia Niro EV

  • Nissan LEAF

  • Porsche Taycan

  • Volvo XC40 Recharge

  • Volkswagen ID.4

Electric vehicle tax credits only apply to new EV car sales. When you lease an electric vehicle, the manufacturer or leasing company will receive the tax credit, as they are the official owner of the car. This fact could be used in negotiations to help bring down the price of your lease, although it will usually be pre-factored into the payment price offered.

Electric Vehicle Incentives in Texas

The Lone Star State is working towards a more sustainable future by offering rebates and incentives for electric vehicles and related equipment. As of 2020, Texas had the 3rd highest number of electric vehicle registrations (52,190), only trailing behind California and Florida. With the help of the following incentive programs, Texas stands to add many more electric vehicles to their roadways.

Does Texas Give Tax Credit for Electric Cars?

The State of Texas does not provide an electric vehicle tax credit. Instead, they will disperse a direct rebate for qualifying purchases (so you don’t have to wait until tax season to receive your financial incentive). The Light-Duty Motor Vehicle Purchase or Lease Incentive Program (LDPLIP) offers up to $5,000 in rebates towards the purchase of a new alternative fuel vehicle (electric, hydrogen, liquid petroleum, or compressed natural gas). Sponsored by the Texas Commission on Environmental Quality, the LDPLIP is awarded as a rebate.

***As of September 2021, the program was not accepting any more applications. Only 1,371 out of 2,000 grants had been awarded, but the application process may be opened again in the future.

You can also see if there are local EV incentives in your area like:

  • Denton, Texas: Residents of Denton, Texas can apply for a rebate upon the purchase of a new electric vehicle. Under the GreenSense Incentive Program, the city will provide a $300 rebate if the car is registered within Denton’s electric utility service territory. This is applicable to both electric and hybrid-electric vehicles.

  • Austin, Texas: Austin and other cities are offering charging equipment incentives to reduce the ongoing costs of operating an electric vehicle. Austin Energy will provide a 50% rebate on the purchase and installation costs of a Level 2 home charging station. The maximum rebate amount is $1,200 for a Wi-Fi enabled charging station. You must be an Austin Energy customer who owns or leases an electric vehicle. Austin Energy will also provide larger rebates for charging equipment when installed at a workplace or multifamily housing unit. Depending on the charger type and other factors, the rebate can amount to a maximum of $10,000.

Can Anyone Get An Electric Vehicle Tax Credit?

Anyone who meets the qualifications for an electric vehicle tax credit can receive the benefit. Federal, state, and local governments do not discriminate based on income, age, or other factors. If you are eligible for the federal tax credit or other incentives, then you should have no issues receiving them.

Electric Vehicle Energy Plans in Texas

At first glance, driving an electric vehicle seems like a perfectly-sustainable replacement for gas-guzzling cars. But where does your electricity come from? Unfortunately, only about 20% of the nation’s energy comes from renewable sources like wind, hydro, and solar. The rest is generated by gas, coal, and nuclear power. So, in a roundabout way, your electric vehicle may still be largely dependent on fossil fuels and other unsustainable energy sources.

Installing solar panels on your home can be a solution to this issue, but it is a large investment that may not be viable for some homeowners (and if you’re a renter, then you don’t even have that choice to make). Luckily, Texas is one of the few states that allows residents to choose their energy provider. Rhythm Energy provides electricity plans backed by 100% renewable energy. Making the switch to a renewable energy EV plan will amplify the sustainability of your new electric vehicle.

To learn more about EVs and to find resources on electric vehicles visit our blogs:

Categories: Electric Vehicles
Tagged: electric vehicles, EVs, renewable energy, EV tax credits, electric vehicle tax credits

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