Electric Vehicle Tax Credits and Rebates Explained
If you are interested in buying or leasing an EV, here’s what you need to know about federal and state incentives.
The quality of EVs has improved greatly in recent years. And because the cost of lithium-ion batteries has fallen so much, we now have several affordable choices.
Federal and state incentives can cut your costs by up to $10,000 on top of the impressive discounts offered through Drive Green.
With federal, state, and dealer incentives, most of the cars in our program cost much less than the average new car in America.
Federal Tax Credits
Plug-in electric vehicles qualify for a federal income tax credit of up to $7,500. The full amount of the tax credit depends on the battery size of the vehicle. If you buy the car in one year, you get the credit when you file your 1040 with the Internal Revenue Service (IRS) for that tax year. We say “up to” $7,500 because the credit is limited by your tax liability. If you owe $7,500 or more, you can take the full credit. If you owe less, say $5,000, you can take a credit on what you owe. The IRS will not write you a check.
This tax credit is available to car purchasers only. If you lease a car, the leasing company gets the tax credit, which is why several dealers are offering attractive leasing options. They are passing at least some of the value of the tax credit onto the terms of the lease.
You should know that the federal tax credits are going to be reduced and phased out for each manufacturer when that company sells 200,000 units in America. After that carmakers sell 200,000 EVs, the tax credit for that carmaker will stay fully in place for 3 months, then cut in half for 6 months, then cut in half again for 3 months, and then it expires. As of July 2018, Tesla has sold 200,000 EVs. General Motors (which makes the Chevrolet Bolt and Volt) and Nissan will probably sell their 200,000th car in the next few months. If you buy or lease a Bolt, Volt, or LEAF by the end of 2018, we are confident that the federal tax credits will be at the full $7,500 (if your tax liability allows for that).
Keep that in mind as you decide on which EV to buy or lease. It's an important consideration if you're waiting a few years to buy or if you prefer to lease now and buy later, with an eye towards getting an EV that is even better than what’s available today. We can expect quality improvements and several more choices by 2020, but it’s anyone’s guess at what an EV will cost then and what federal incentives will be available.
Massachusetts currently offers rebates of $2,500 for plug-in electric vehicles through the MOR-EV Program. Again, the size of the rebate is tied to the battery size of the vehicle. Rebates are available to purchasers and to those who lease for at least 36 months.
*On December 6, 2018, the state announced important changes to the MOR-EV rebate that will take effect in 2019. As of January 1, 2019:
- Only battery-electric vehicles will qualify for the rebate and the amount will change to $1,500. Plug-in hybrids will no longer qualify for the state rebate.
- Only vehicles with a sales price under $50,000 will qualify for the rebate.
- The rebate has been extended to June 30, 2019.
Rhode Island had its own state rebate, DRIVE, which was suspended in 2016 for lack of funds. It is one of our advocacy priorities in Rhode Island to re-instate the DRIVE program.