Easy Valve Volcano Ev
Electric vehicles (EVs) are touted as the greener way to travel, reducing our dependence on fossil fuels and allowing drivers to spend far less at the gas pump — something that many of us can appreciate as gas prices reach new record highs. But EVs – including plug-in hybrids (PHEVs) and all-electric options – have a barrier to entry: They cost more than their traditional gas-only counterparts. Fortunately, thanks to the EV tax credit, you can offset some of that price increase when you file your taxes if you buy a qualifying EV.
Like most tax credits, qualifying for the EV tax credit requires meeting several criteria. If you're thinking about flipping the switch to electric — and taking advantage of the potential tax reduction — it helps to learn more about the eligibility requirements. We'll show you how the credit works, how much you'll save and whether it can result in a larger tax refund.
The EV tax credit is a financial incentive designed to encourage consumers to buy electric vehicles over the alternatives. It reduces your tax burden dollar-for-dollar based on the amount you're eligible to claim, allowing you to limit your tax liability during the calendar year when you purchase the vehicle. Offsetting some of the cost of buying an EV with a tax credit makes these vehicles more financially viable for a larger portion of the population.
In many ways, the EV tax credit isn't unlike home improvement credits. Those make it more affordable for homeowners to install alternative energy equipment or make similar energy-efficient updates by reducing the cost through tax incentives.
The EV tax credit works like most other tax credits, too. If you qualify, you can reduce your tax burden by the amount of the credit. That differs from tax deductions. With deductions, you reduce your taxable income by a specific amount instead. While deductions do lower your tax burden, it isn't necessarily the same dollar-for-dollar decrease you see with credits.
Also like other tax credits, you need to file for the EV credit on your annual income tax return. The IRS won't apply it automatically. Instead, you'll have to submit the right forms to factor it into your tax equation.
It's important to note that the EV tax credit isn't refundable. Essentially, if you owe less in taxes than the credit is worth, you won't get the remainder of the credit as a refund. For example, if your tax obligation is $5,000 and you qualify for $7,500 through the EV tax credit, the incentive covers the $5,000 you owe, but the remaining $2,500 of value won't show up in your refund. And, you can't roll it over to the next year.
How to Qualify for the EV Tax Credit
Qualifying for the EV tax credit isn't too complicated. As long as the vehicle you buy meets all of the outlined requirements and the manufacturer isn't subject to a phaseout, you can claim it on your taxes when you file.
A vehicle must meet specific criteria to qualify for the tax credit. First, having four wheels is a must, and it can't weigh more than 14,000 pounds. Additionally, the battery must provide 4+ kilowatt-hours of power and has to charge from an external source, like a plug. That means non-plug-in hybrids aren't eligible. Generally speaking, the tax credit only applies to new cars, too. Also, only purchases – not leases – qualify. You need to begin driving the vehicle in the same year you claim the credit, too.
How Much Is the EV Tax Credit Worth?
The value of the EV tax credit you're eligible for depends on the car's battery size. Essentially any PHEV that meets the minimum requirements as outlined above qualifies for at least $2,500. However, the credit is worth up to $7,500, depending on the size of the battery. After the base $2,500, the tax credit adds $417 for a 5-kilowatt-hour battery. For every kilowatt-hour of capacity above 5 kilowatt-hours, the credit goes up by $417, capping out at $7,500.
If you go with an all-electric vehicle, the odds are higher that you'll qualify for the full $7,500. However, some PHEVs are only eligible for a portion because their batteries are smaller.
There's also a phaseout of the credit as specific vehicles are sold. Once 200,000 eligible vehicles from one manufacturer are sold for use in the U.S., the phaseout process begins. For some manufacturers, the phaseout is currently underway. In the case of Tesla, the credit is no longer available, as 200,000 qualifying purchases have already occurred.
Mainly, the credit differs because all-electric vehicles broadly qualify for the full tax credit. With plug-in hybrids, the battery size determines the credit size. Some may still reach the full $7,500, while others will fall below that mark. Still, any qualifying car that isn't subject to the phaseout results in at least a $2,500 credit.
Claiming the EV Tax Credit on Your Tax Return
Overall, claiming the EV tax credit is a pretty straightforward process. You'll need to complete IRS Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, when you file.
On the form, you provide basic information about the EV and the purchase. Along with year, make and model, you'll need to enter the VIN, which you can find in the vehicle, on the registration, on the title and in sales documents. You'll also need to enter in the credit amount – which you can find through the IRS – and a phaseout percentage, if it's applicable.
Whether you need to complete Part II of the form depends on whether you used the vehicle for business and investment purposes. If so, review the IRS instructions to complete that section. If not, proceed to Part III. There, you'll enter some previous figures and do a bit of math. You'll also need some data from your Form 1040 to wrap up some calculations. After that, you'll see the total credit value.
If you use tax software or a tax-preparation service, it should assist you with completing Form 8936. That way, you can get the credit without breaking out a calculator yourself.
Source: https://www.askmoney.com/taxes/ev-tax-credits-2022?utm_content=params%3Ao%3D1465803%26ad%3DdirN%26qo%3DserpIndex&ueid=38e51e75-cb25-4201-a2df-06537452e25f
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