Potentially Sizeable Tax Credit for Electric Vehicle Owners!

The IRS enacted a nonrefundable income tax credit for “new qualified plug-in electric drive motor vehicles”. For each qualifying vehicle, the credit is $2,500…. plus $417 for vehicles with at least five kilowatt hours (kwh) of rechargeable battery power, and an additional $417 for each additional kwh above five, to an additional credit of $5,000. This brings the maximum credit to $7,500. 

This is great news considering the 2011 Chevy Volt is advertised as having a battery capacity of 16 kwh, the 2011 Nissan Leaf 24 kwh, and the Ford Focus Electric 23 kwh. For example, Volt owners would be eligible to receive a whopping $7,500 tax credit ($2,500 plus $417 (for kwh of at least 5), plus $4,587 (for the extra 11 kwh (16-5)). 

Electric model requirements for the credit are that the qualified plug-in vehicles must be powered ‘to a significant extent’ by an electric motor drawing power from a battery with a capacity of at least 4 kwh that can be recharged from an external source of electricity. Cars with the ability to use both a plug-in electric engine and gasoline engine, technically known as plug-in hybrid electric vehicles (PHEVs) are eligible. 

Vehicles with fewer than 4 kwh or weighing more than 14,000 pounds are not eligible. 

The credit will have a production phase-out similar to the previous hybrid vehicle credit. The phase-out per manufacturer begins once the total qualifying vehicles manufactured and sold for use in the U.S. since the beginning of 2010 reaches 200,000 units. From there, the applicable credit per vehicle will be cut in half for two calendar quarters, then reduced by 25% in the third and fourth quarters and fully eliminated after that. The phaseout is more generous than the Hybrid credit which started to phase-out at 60,000 vehicles per manufacturer produced and sold after Dec. 31, 2005. 

To claim the credit Form 8834, “Qualified Plug-In Electric and Electric Vehicle Credit” will be filed with the taxpayer’s returns.

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