ev 101
Exploring the tax benefits of electric vehicles in the US
In recent years, the market for fully electric and plug-in hybrid electric transportation has gained significant momentum. Global passenger EV sales are expected to exceed 30 million in 2027 and in the next four years, electric car sales grow at an average of 21%. In the United States, federal and state tax credits are available to encourage drivers to purchase or lease an EV. The Inflation Reduction Act of 2022 made significant changes to these programs. Here’s a brief look at the tax benefits available for personal passenger electric and plug-in hybrid electric vehicles in the US.
Federal tax credits
One of the most notable incentives is the federal electric vehicle (EV) tax credit. This credit reduces federal income tax liability by up to $7,500, subject to vehicle and purchaser eligibility requirements. Credits are available for purchases of new electric and plug-in hybrid electric vehicles. Starting this year, buyers have the option to transfer the tax credit to a car dealership willing to recognize it as a point-of-sale rebate.
This program also offers federal tax credits to purchases of pre-owned electric vehicles. Buyers are eligible for a credit of up to $4,000 based on the sale price for qualified vehicles that must be at least two years old.
State tax incentives
Many states offer additional incentives for purchasing or leasing electric or plug-in hybrid electric vehicles. These can be tax credits or cash rebates depending on the state. In every case, they are additional to the federal incentive and further encourage EV purchases.
Programs vary by state, eligibility, credit or rebate amount, and other conditions. The following list shows many of the states that are currently offering incentive programs, although this list is not intended to be exhaustive, and new or revised programs may be in place since this article was published. Click on each state to learn more about the program.
The Clean Vehicle Rebate Project (CVRP) promotes clean vehicle adoption by offering rebates from $1,000 to $7,500 for the purchase or lease of new, eligible zero-emission vehicles.
For eligible purchases, Washington reinstated the sales and use tax exemption for the sales of vehicles powered by a clean alternative fuel.
The Drive Clean Rebate offers electric vehicle (EV) buyers up to $2,000 off the purchase or lease of 60+ new EV models.
Charge Up New Jersey promotes clean vehicle adoption by offering incentives of up to $4,000 for the purchase or lease of a new, eligible battery electric vehicle (EV).
In Texas, drivers who purchase or lease an eligible new light-duty motor vehicle may be eligible for a grant for the alternative fuel vehicle.
Illinois residents that purchase a new or used all-electric vehicle may be eligible for an Illinois’ Electric Vehicle Rebate of up to $4,000.
The Charge Ahead Rebate programs can save Oregonians up to $7,500 on the purchase or lease of a qualifying electric vehicle.
In addition to, or in place of, statewide tax credits for electric and plug-in hybrid electric vehicles, some states exempt these vehicles from paying sales tax on the purchase. This could significantly reduce upfront costs associated with purchasing a new or used vehicle. Washington state is one example of this approach to tax incentives.
Federal tax credits and state incentives increase the financial benefit of investing in an electric vehicle. For the most current and detailed information, always refer to official resources (we recommend the US Dept. of Energy’s Alternative Fuels Data Center) and ask sales staff at your dealership for more information. As always, consult with a tax professional for guidance and to ensure you’re taking full advantage of available incentives.
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Date
22 August 2024
author
Brian Ross
Director of Policy and Market Development - East
bp pulse Americas
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