Don't Mess With Taxes

No gasoline necessary for electric vehicles like this Chevrolet Bolt, which instead is plugged in to recharge for the road. If you opt for an IRS-certified electric auto or light truck, you might get some tax break help on your purchase.  

Climate change is getting more coverage lately.

People are paying attention to what's happening with Mother Nature here in the United States thanks to the opposing environmental takes by the two presidential contenders. On a more personal level for many Americans is that we're in the midst of one of the most active hurricane seasons ever — we're already up to Vicky for named storms! — at the same time that much of the West Coast is engulfed in wildfire flames.

These factors have prompted many climate-concerned individuals to do what they can to reduce greenhouse gas emissions, which even U.S. government scientists still say are the most significant driver of observed climate change since the mid-20^th century.

One of the easiest ways to do this is by switching to electric vehicles. And Uncle Sam is helping by offering a federal tax credit for the purchase of certain plug-in autos.

Tax breaks for environmentally-friendly vehicles: This credit ranges from $2,500 to $7,500. That's very good news since a credit provides a dollar-for-dollar reduction of any tax you might owe. In many cases, that could zero out what a taxpayer might owe.

But, and you knew since we're talking tax breaks there was a but, there are some limits to this environmentally friendly tax credit.

First, it applies only to purchases (or leases) of new electric passenger vehicles and light trucks. The Internal Revenue Service says a qualifying vehicle must:

• have at least four wheels,
• be propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and
• have a gross vehicle weight of less than 14,000 pounds.

Second, the Internal Revenue Code Section 30D that provides the tax credit for Qualified Plug-in Electric Drive Motor Vehicles is, no surprise, a bit complicated.

The amount of the credit depends on how much propulsion energy a vehicle draws from a battery with at least 5 kilowatt hours of capacity, with added credit amounts for each added kilowatt hour of battery capacity in excess of 5 kilowatt hours.

I don't know about y'all, but my eyes start to glaze over at a certain point; I just want to put my key in the ignition and drive. But the bottom line is that the electric vehicle credit could be as much as $7,500.

Third, it starts to phase down and eventually, after six quarters of credit reductions, is eliminated for an auto manufacturer's plug-in vehicles that top more than 200,000 sales. That's already happened for the more popular electric autos. Both Tesla and GM tax credits took value hits when their eligible vehicles passed the 200,000-sold threshold in 2018.

More tax-credit eligible vehicles added: But there is still some good tax news for electric vehicle fans.

The IRS has added Audi, MINI and Toyota Prius models to the list of vehicles that are eligible for the plug-in electric drive motor vehicle credit. The new qualifying autos are:

• The 2020 Audi e-tron Sportback is eligible for the maximum credit of $7,500. The 2020 Audi A8L PHEV and AudiQ5 PHEV are eligible for a credit of $6,712.
• The 2020 MINI Cooper S E Hardtop 2 Door and MINI Cooper S E Hardtop are eligible for the maximum credit of $7,500. The 2020 and 2021 MINI Cooper S E Countryman ALL4s are each eligible for a credit of $5,002.
• The 2021 Toyota RAV4 Prime Plug-In Hybrid is eligible for the maximum credit of $7,500. The 2020, 2021 Prius Prime Plug-in Hybrid is eligible for a credit of $4,502.

These electric plug-ins have been added to the list of tax-credit-eligible vehicles that are made by the following 37 manufacturers:

Yeah, I didn't have any idea that were that many electric automakers, either. You can get the specifics on each of the qualifying vehicles and maximum available tax credit at the IRS' special (and regularly updated; the last change was on Sept. 11) IRC 30D New Qualified Plug-In Electric Drive Motor Vehicle Credit web page.

If you're not ready to buy an electric auto just yet, you also can track your favorite manufacturer's electric vehicle quarterly sales to see if it's getting close to triggering the reduced tax credit.

Filing for the tax credit: When you do buy a credit-eligible electric auto, you'll claim your tax break by filing Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two- or Three-Wheeled Plug-in Electric Vehicles).

Yep, that's a mouthful of an official title for a page-and-a-half form, shown below. But size notwithstanding, since more folks might be using Form 8936 next filing season and it's got a connection to the environmental debate now underway, it's this week's Tax Form Tuesday featured document.

Form 8936 can be used by both individual taxpayers and businesses, specifically Partnerships and S corporations, that purchase an eligible vehicle to do their jobs. (Who else is seeing in their heads the Amazon television commercial about its electric delivery vans?)

Individual taxpayers must meet the following requirements to qualify for the credit:

• You are the owner of the vehicle. If the vehicle is leased, only the lessor and not the lessee, is entitled to the credit.
• You placed the vehicle in service during your tax year.
• The vehicle is manufactured primarily for use on public streets, roads, and highways.
• The original use of the vehicle began with you.
• You acquired the vehicle for use or to lease to others, and not for resale.
• You use the vehicle primarily in the United States.

Certification required, too: You also need proof that the vehicle qualifies. The IRS says that in most cases, a buyer of an electric auto can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies.

That's what the IRS uses to update its online page tracking credit eligible vehicles. But you as the vehicle buyer also should get from the seller a copy of the IRS letter acknowledging the certification of the vehicle.

The Form 8936 instructions provide details on filling out the form if you're still doing that the old-fashioned way. Most of us rely on software or tax preparers who use software; they'll walk us through the form completion.

Finally, while this is a valuable tax credit, it is not refundable. That means that if you have more credit for your electric plug-in vehicle than your tax liability, you lose the excess credit. It can't create a tax refund for you. Neither can it be carried back or forward to other tax years.

You also might find these items of interest:

• Electric vehicle tax credits favor the wealthy
• 17 states now impose some fees on electric autos
• IRS let up to $83M in improper electric vehicle tax credits slip through, says watchdog report

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