If you are considering the purchase of an electric vehicle, be sure to take full advantage of federal tax incentives that may be available to buyers of vehicles that run primarily on electricity. Depending on the type of electric vehicle you invest in, it is possible to take advantage of multiple tax credits on a single transaction. In addition to federal tax credits, some states might have their own separate tax credits for electric vehicles. When you consider the savings from using federal and state tax credits along with the potential savings on gas, buying an electric vehicle may become a more viable option.
Ask the electric car dealer to provide you with tax credit eligibility information on the vehicle you are purchasing. This information will help you complete tax forms later on and update you on any recent revisions or additions to existing tax credits.
Purchase a new electric vehicle. When you have decided on a vehicle, keep in mind that you will get the greatest amount of the current federal tax credit for vehicles with larger battery capacities. As of 2010, any vehicle with over 4 kilowatt-hours of battery capacity is eligible for a $7,500 credit.
Claim the Electric Drive Vehicle Credit by filling out Form 8936 and attaching it to your federal tax return for the year purchased. The IRS currently lists two electric models that qualify for the full $7,500 credit. This list will expand as more electric vehicles are released.
Use the Plug-In Electric Vehicle Credit when purchasing smaller, low-speed electric vehicles. These types are often referred to as neighborhood electric vehicles. You can claim up to $2,500 for these vehicles by filling out Form 8834 and attaching it to your federal tax return.
Use the conversion tax credit. If you convert your hybrid vehicle into a fully electric plug-in vehicle, you are eligible to receive 10 percent of the conversion costs up to $4,000. The conversion credit was set to be phased out by 2012, however.
Take advantage of state tax credits. If you reside in California, the Clean Vehicle Rebate Project allows to you to get up to $5,000 for light-duty electric vehicles and up to $20,000 for zero-emission commercial vehicles. But not all states are as generous. To find out if your state offers tax credits towards electric vehicles, visit The Car Electric website (see References), which provides current benefits available in various states.
