We all know electric cars are expensive to purchase; however, you can qualify for an incentive that reduces the total purchase price. For instance, the Federal Qualified Plug-in Electric Drive Motor Vehicle Credit gives back up to $7,500 if you qualify. But you need to file your federal tax returns first. Apart from that, depending on your home location, you could end up qualifying for city or state incentives such as rebates and discounts.

But if you accept these rebates, will you lose part of it to taxes?

What is an Electric Car Rebate?

To encourage more people to buy EVs, the US government started issuing federal income tax credit back in 2010. As mentioned above, this credit could be up to $7,500 depending on the car, but not every driver qualifies.

Fully-electric vehicles tend to receive more credit compared to hybrids. The federal tax credit also only applies to the first 200,000 vehicles sold by each EV manufacturer. If you don’t qualify for the federal tax credit, you may still be eligible for other local and state incentives.

EV rebates are usually not taxed, and the administrator won’t issue you with a 1099 tax form for the rebate. A 1099 form, also called an information returns, is where you document income received from dividends, government payouts, and anything outside your salary. If you live in California, you will have to pay tax on your rebate for federal and state returns.

What Cars Qualify for a Rebate

Certain things come to play for your car to qualify for the federal electric vehicle income tax credit. For example, a vehicle may be eligible if it runs off a battery with at least 5 kilowatt-hours. However, the government may phase this out once most manufacturers hit it.

So, to qualify, here are some of the most common considerations.

  1. You must be the original owner. A leased vehicle might qualify for a rebate, but the amount goes to the leasing company, not you. On the same note, you cannot transfer the rebate to someone else. If you’re buying a used EV from someone, don’t expect to see a credit.
  2. You need to have purchased the vehicle after December 31, 2009, to be eligible for a tax credit.
  3. To qualify for a rebate, you must drive the EV on US roads, and you cannot export it.

Do These Tax Credits Expire?

Many people are now buying electric cars in large volumes. As a result, the government has begun phasing out some of the EV tax credits. However, there is no set date when these rebates expire. It depends on the manufacturer. When the manufacturer sells over 200,000 qualifying vehicles, the tax credit decreases.

For example, Tesla hit that limit in 2019, and the tax credit for their EVs dropped to $3,750. As of 2020, the government has phased out tax credit on Tesla cars completely.

What Other Incentive Should You Look Out For?

When it comes to EV incentives, depending on your state, city, or utility company, you could get additional incentives. Be on the lookout for tax credits, rebates or vouchers, discounts on vehicle registration fees, including other exemptions.

For instance, in Colorado, EVs are exempt from state motor vehicle emissions inspections. You get rebates in California whenever you purchase electric vehicle supply equipment or EVSE, like a charging station. In Nevada, you get reduced EV charging station rates and AVF parking exemptions. The list of state exemptions goes on and on—you can read all of them on the Tesla support page.

Conclusion

Do a little research when buying your electric car so that you’re aware of what you can get for opting for an EV. These rebates, including federal tax credit, could offset the high price tag set on an EV. You could find that buying an EV, in the long run, costs less than buying a used car. Notably, a rebate is the same for both purchasing and leasing. If you’re still unsure about rebates, consult a tax professional.