I recently leased my first electric vehicle (EV)—a Toyota bZ4X. I love the responsive acceleration and panoramic moonroof, and I definitely don’t miss having to stop at gas stations. But another great advantage to having an EV, aside from helping the planet, is the various financial incentives associated with it. Let’s take a look at a few.
Federal tax credit basics
The New Clean Vehicle Tax Credit is a federal credit available to individuals or businesses that purchase an EV between 2023 and 2032. To take advantage of this up to $7,500 tax credit, you need to own a car that is a new, qualified plug-in EV or fuel cell electric vehicle for your own use (not for resale) in the United States. A federal credit of up to $4,000 is available for the purchase of used EVs, but some restrictions apply. To find out which cars qualify, you can visit the U.S. Department of Energy website.
Limitations
To claim this credit, married couples who file their tax return jointly cannot have an adjusted gross income (AGI) in excess of $300,000. For head of household filers to qualify for the credit, the maximum AGI is $225,000. All other filers can’t have an AGI of more than $150,000.
Additionally, the EV needs to “undergo final assembly in North America,” according to the IRS. Since some cars are foreign-made, they may be ineligible for the credit—but there is a work-around.
Lease options open doors
While people who purchase an EV directly may be subject to the above regulations, those who lease rather than buy may find other ways to benefit. “Leasing companies do not have these same requirements, which allows them to receive the tax credit and then pass it on to the consumer in the form of a more cost-effective lease,” explains Paul Miller, CPA and founder of Miller & Company, LLP.
According to Vincent Bray, head of financial services communications at Toyota Motor North America, “leased EVs can also qualify for clean vehicle tax credits and are not subject to the domestic assembly requirements of the Inflation Reduction Act.” He explains that as a leasing company, Toyota Lease Trust can claim tax credits for leasing battery EVs and plug-in hybrid EVs and pass that benefit along to customers via lease cash incentives.
I was able to take advantage of $16,250 in incentives from Toyota, which reduced my lease payments significantly. Other companies may have similar incentives.
Don’t forget about state programs
Some states also offer their own tax credits in addition to the federal credit. For example, with New Jersey’s Charge Up program, residents can qualify for incentives of up to $4,000 for a new EV, as well as another $250 for a qualifying charger. Colorado offers residents up to $7,500 in tax credits, and Massachusetts has an incentive that provides up to $6,000. California, Delaware, New York and Maryland also have programs available to support people who invest in an EV.
On the flip side, some states want to recoup a loss from people who no longer need to fill up at gas stations and don’t pay a state tax on gas as a result. These annual fees range from $50 to upward of $200 for people who buy or lease an EV, so it’s important to pay attention to your state’s laws before making a commitment.
Other potential benefits
Individuals who install a charging station at home may be eligible for an additional federal tax credit of up to 30% of the cost of the charger and installation, up to a total of $1,000. “An important restriction added in 2022 is that the qualifying property must be placed in service in a low-income or nonurban census tract,” says Mark Luscombe, principal federal tax analyst at Wolters Kluwer. “Approximately two-thirds of taxpayers live in such census tracts.”
To determine if your location qualifies, visit the U.S. Department of Energy website. Filers can complete Form 8911 to take advantage of the credit.
Additionally, some electrical companies offer reimbursement for chargers installed in your home. For example, FirstEnergy offers incentives for installing EV chargers in New Jersey and Maryland. Jersey Central Power & Light (JCP&L) in particular provides residential customers with up to $1,500 to cover the costs of installing EV charging service equipment in their homes.
Residents who use JCP&L can also benefit financially if they charge their vehicles at certain times of day. “Residential customers can qualify for an off-peak rate credit of $0.02 per kWh as an extra incentive to charge their vehicles overnight,” says Christopher Hoenig, senior communications representative at FirstEnergy. The company also offers financial incentives for multifamily sites that want to create a communal charging area.
Going green with EVs
EVs are becoming more and more popular, and quite a few car manufacturers have created their own versions in recent years. If you do decide to go green and purchase or lease an EV, make sure to cover your bases and take advantage of every federal and state benefit you can.
Photo by CHUTTERSNAP/Unsplash
