Tips for Affording a New Electric Vehicle & Saving on Maintenance
Are you in the market for a new or “new to you” vehicle? If you’re debating whether to get a gas-powered vehicle or switch to an electric vehicle (EV), there are some ways you can save on both the cost of an EV and the cost to charge and maintain it.
As the technology behind electric vehicles has grown, more consumers are making the switch to EVs. The market for electric cars is growing, according to the Bureau of Labor Statistics. In 2011, electric vehicles accounted for 0.2% of total car sales. By 2021, they will account for 4.6% of total car sales.
While some tax credits have existed in the EV sector in the past, the Inflation Reduction Act that was signed by President Biden in 2022 expanded these credits to create incentives for consumers and businesses alike to switch to electric vehicles.
Let’s look at 4 tax credits to help you buy an EV and save on maintenance costs:
1. New Electric Vehicle Tax Credit
Making the switch to an EV can save money in the long run because you’re no longer paying for gas. But it can be hard for families to afford the cost of a new electric car. To help with this, the Inflation Reduction Act created the Light-Duty EV Tax Credit.
With this credit, those with an adjusted gross income (AGI) of $150,000 or less per year as a single taxpayer ($300,000 for joint filers) can qualify for up to $7,500 tax credit. To qualify, the car must have a manufacturer-suggested retail price (MSRP) of less than $55,000 ($80,000 for vans or trucks).
You can file for this tax credit in two ways:
- You can submit Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) when you file your taxes.
- Starting in 2024, you can transfer the tax credit to the car dealership as a point-of-sale rebate. This lowers the price of the vehicle by the amount of the tax credit you receive, helping lower the overall cost of an EV.
2. Used Electric Vehicle Tax Credit
Like the New EV Tax Credit, there is now a tax credit for individuals who buy used electric vehicles. Starting in 2023, if you purchase a used electric vehicle from a dealership for a price of $25,000 or less, you may be eligible for a tax credit of 30% of the purchase price up to a maximum of $4,000.
This credit is limited to those who earn an AGI of less than $75,000 for single filers or $150,000 for married filing jointly.
The car you purchase must be at least two years old and weigh less than 14,000 pounds.
Like the New EV Credit, you can either file Form 8936 when you file your tax return or, starting in 2024, you can transfer the credit to the dealership to get a reduction in the price of the vehicle.
3. Electric Charging Station Tax Credit
The Alternative Fuel Vehicle Refueling Property Credit, which has been extended through 2032, can help you set up an electric charging station for your EV. This credit allows homeowners or those installing a charging station for individual use to receive 30% of the cost of installation back, up to a maximum of $1,000. For businesses that install charging stations, the credit is up to 6% of the cost of installation, up to a maximum of $100,000 per unit.
To qualify for the credit, the installations must be in rural or low-income communities. These credits make installing a charging station more accessible for people in these communities who are interested in buying an EV. It also might incentivize apartment owners to install charging stations so building residents can get electric vehicles as well.
To apply for this tax credit, you’ll need the receipt from the installation of your charging station. Then file tax Form 8911, Alternative Fuel Vehicle Refueling Property Credit for the tax year in which you placed your charging station.
Business Owner Bonus: Leased Electric Vehicle Tax Credit
One additional tax credit that was introduced in the Inflation Reduction Act is the Commercial Clean Vehicle Tax Credit. This is a $7,500 credit for businesses that lease electric vehicles weighing less than 14,000 pounds.
To qualify, the entity leasing the vehicle must be a business or nonprofit organization that leases vehicles, or an individual who leases a qualifying vehicle from a qualified business or organization.
This tax credit is provided directly to the dealer with the intention that the dealer will pass on the cost reduction to the consumer through lower lease payments and fees. If you decide to lease an electric vehicle, be sure to ask the dealership how they pass on the tax incentives from the Inflation Reduction Act to you the consumer.