What You Need To Know About Plug-in Electric Vehicle Tax Credits (IRC 30D)

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Faraday Future All Electric Super CarWhen you think of plug-in electric cars, the number one brand that probably comes to mind is Tesla.  Wouldn’t it be nice to NEVER have to pump gas again and pay over $2.50 per gallon or more each time?  Luckily the IRS provides some very enticing plug-in electric vehicle tax credits coded as IRC 30D.

Here’s how it works.

You’ll often hear that a credit is worth “up to” a certain amount. “Up to” is the critical modifier. The federal incentive is usually referred to as a flat $7,500 credit, but it’s only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. Let’s say you buy a Nissan Leaf or other eligible vehicle and you owe $5,000 in income tax for a particular year. That’s all the tax credit will be. Uncle Sam’s not writing a refund check for the other $2,500. And an unused portion of the credit can’t be applied against the following year’s taxes.

Related: Here’s why saving money is a broke mindset.

The credits also are based on the electric car’s battery size. For some models, the maximum can fall well below $7,500. The Toyota Prius Plug-In, a hybrid hatchback that was discontinued after the 2015 model year, only qualified for a $2,500 federal tax credit.

Here’s an ever-changing list of vehicles that currently qualify for the federal tax credit.

Electric (Each of these Vehicles get $7,500 in Federal Tax Credits):

BMW i3
Chevrolet Spark EV
Fiat 500e
Ford Focus Electric
Kia Soul EV
Mercedes-Benz B-Class EV
Mitsubishi iMiEV
Nissan Leaf
Smart Fortwo EV
Tesla Model S
Tesla Model X
Volkswagen e-Golf

Plug-in Hybrid and the Federal Tax Credits: 

Audi A3 e-tron $4,168
BMW i3 (with range extender) $7,500
BMW i8 $3,793
BMW X5 xDrive40e $4,668
Cadillac ELR $7,500
Chevrolet Volt $7,500
Ford C-Max Energi $4,007
Ford Fusion Energi $4,007
Hyundai Sonata Plug-in Hybrid $4,919
Mercedes-Benz s500e $4,042
Porsche Cayenne S E-Hybrid $5,335
Porsche Panamera S E-Hybrid: $4,751 (by the way, here’s the top 10 best Porsche to buy today).
Porsche 918 Spyder: $3,667
Toyota Prius Plug-in: $2,500
Volvo XC90 T8: $4,545

Here’s actual text from the IRS regarding Plug-in Electric Vehicle Tax Credits

Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks.

For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.

The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For additional information see Notice 2009-89.

Section 30D originally was enacted in the Energy Improvement and Extension Act of 2008. The American Recovery and Reinvestment Act of 2009 amended section 30D effective for vehicles acquired after December 31, 2009.  Section 30D was also modified by the American Taxpayer Relief Act (ATRA) 2013 for certain 2 or 3 wheeled vehicles acquired after December 31, 2011 and before January 1, 2014.

The vehicles must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States. For purposes of the 30D credit, a vehicle is not considered acquired prior to the time when title to the vehicle passes to the taxpayer under state law.

Should you receive a tax refund from all of your credits, here’s a few great ideas on why you should invest in the stock market.

Notice 2009-89 applies to vehicles acquired subsequent to December 31, 2009 and provides procedures that a vehicle manufacturer may use if it chooses to certify that a vehicle meets certain requirements that must be satisfied to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit and the amount of the credit allowable with respect to that vehicle

Credit Amounts for Qualified Vehicles Acquired After December 31, 2009

Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out

The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period.  Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

It’s worth noting specifically that the credits will begin to phase out over time and as more vehicles are manufactured.

So, maybe now is the best time to buy a plug-in electric vehicle to reduce your dependency on fossil fuels and eliminate your carbon footprint.

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About Brandon Foster 19 Articles
Brandon Foster writes about stock and options trading for Camtrading.com. He also writes product reviews for a prominent online publisher. Previously he managed an equity fund and daytraded full-time in Seattle. He currently lives in Portland, Oregon, and spends his free time thinking of new ventures to start.