Electric Vehicle Tax Credits and Rebates Explained
The quality of electric cars has improved greatly in recent years. And because the cost of lithium-ion batteries has fallen so much, we now have several affordable choices.The federal tax credit can cut your costs by up to $7,500 on top of the impressive discounts offered through Drive Green. With these incentives, many electric car models cost much less than the average new car in America.
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.
Both Tesla and GM (maker of Buick, Cadillac, GMC, and Chevrolet) have sold over 200,000 EVs and have had their tax credit phased out. Of the car manufacturers in our program, Nissan is next in line to hit the 200,000-car-mark, but it's unclear when that will occur. We'll update this page as we learn more, but you can find a good summary of where each car manufacturer stands here.
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 in the early 2020s, but it’s anyone’s guess at what an EV will cost then and what federal incentives will be available.
Edmunds Guide for Federal Tax Incentives
If you have more questions about federal tax credits, we recommend the Edmunds Guide. They have the most up-to-date information about which cars qualify, the maximum incentive you can receive for each car, and how the credits phase out after manufacturers sell their 200,000th model.
The Massachusetts Offers Rebates for Electric Vehicles (MOR-EV) has been reestablished as of January 1, 2020. Eligibility requirements are as follows:
1. Only purchases and leases made on or after January 1, 2020 are eligible.
2. Battery Electric Vehicles (BEVs) with sales prices under $50,000 are eligible for a $2,500 rebate.
3. Plug-in Hybrid Electric Vehicles (PHEVs) with sales prices under $50,000 and all-electric ranges of 25+ miles are eligible for a $1,500 rebate.
4. Zero-emission Motorcycles (ZEMs) will no longer be eligible.
5. The rebate needs to be applied for within 3 months of purchase.
Rhode Island does not currently have a state rebate for electric cars.
Only Massachusetts residents are eligible for the rebate. You can learn more and apply here.
The Driving Rhode Island to vehicle electrification program is active as of July 7, 2022. The latest details are as follows:
- DRIVE EV offers rebates of up to $2,500 for those who buy or lease new battery electric vehicles or fuel-cell vehicles.
- New plug-in hybrid electric vehicles will be eligible for a $1,500 rebate.
- Used EVs will qualify for a $1,500 rebate.
- Qualified applicants will have 120 days from the date of purchase or lease to apply for the rebate program online.
The DRIVE EV update will be updated on July 7, 2022 to reflect this new program.