The Internal Revenue Service (IRS) offers tax credits to owners and manufacturers of certain plug-in electric drive motor vehicles, including passenger vehicles, light trucks, and two-wheeled vehicles. Taxpayers who own vehicles that qualify may file Form 8936 with their income taxes to claim the tax credit.
- Internal Revenue Code 30D(a) determines electric drive motor vehicle tax credit eligibility for four-wheeled cars and small trucks, as well as two-wheeled vehicles.
- The tax credit phases out for four-wheeled electric plug-in vehicles from manufacturers that have sold over 200,000 qualified vehicles.
- The tax credit is phased out for both Tesla and General Motors cars as of 2021, with Nissan soon to lose its tax credit eligibility status.
- As of 2021, there are active efforts to reform current electric vehicle tax incentives, including attempts to cap qualifying electric and hybrid vehicle costs and implement income limitations.
What Is Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
Form 8936 is an IRS form for claiming the Qualified Plug-in Electric Drive Motor Vehicle Credit on an individual’s tax return. Taxpayers may use Form 8936, provided the new plug-in electric vehicle they purchase meets certain eligibility requirements. Tax credits reduce the amount of income tax a taxpayer owes, dollar-for-dollar.
Internal Revenue Code (IRC) Section 30D determines tax credit eligibility for cars and trucks with at least four wheels and a gross vehicle weight of fewer than 14,000 pounds. The vehicle must draw energy from a battery with at least five-kilowatt hours that can be recharged from an external source.
The credit for these types of vehicles ranges from $2,500 to $7,500, depending on the capacity of the electric battery. A vehicle with a five-kilowatt-hour battery is eligible for the minimum $2,500 credit. The credit increases by $417 per additional kilowatt-hour up to a maximum of $7,500.
The American Taxpayer Relief Act of 2012 modified IRC Section 30D to include a provision for certain two- and three-wheeled vehicles purchased in 2012 or 2013. The credit for these types of vehicles was 10% of the purchase price, up to $2,500. This tax credit was only for vehicles purchased and driven in one of these two years.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the credit for qualified two-wheeled (but not three-wheeled) plug-in electric vehicles acquired between 2015 and the end of 2021. According to IRC Section 30D(g) only new two-wheeled vehicles capable of achieving a speed of 45 miles per hour or greater, that draw electricity from a battery with a capacity of at least 2.5-kilowatt-hours, and that have a gross vehicle weight of fewer than 14,000 pounds may qualify for the credit. The amount of the credit is 10% of the purchase price, up to $2,500, just as it was for two- and three-wheeled vehicles purchased in 2012 or 2013.
Who Can File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
To be eligible for the electric vehicle tax credit, a taxpayer must have purchased their four-wheeled electric plug-in vehicle during or after 2010, or their two-wheeled plug-in vehicle between 2015 and the end of 2021, as noted above, and begun driving it in the same year in which the credit is claimed. The vehicle must be new at the time of purchase; there is no tax credit for used electric vehicles.
The credit cannot be claimed by the drivers of leased vehicles. It will instead go to the manufacturer offering the lease. The tax credit may be partially factored into the lease costs, so the customer may see some benefit.
Plug-in hybrid vehicles also qualify for the tax credit. The 2021 Toyota Prius Prime, for example, qualifies for the tax credit due to its plug-in recharging capabilities. However, the standard 2021 Toyota Prius does not because the vehicle does not plug in to recharge.
Under IRC 30D, the tax credit phases out for a manufacturer’s four-wheeled vehicles over the one-year period beginning with the second calendar quarter after the 200,000th sale. During the phase-out period, qualified vehicles are still eligible for 50% of the credit if purchased within the first two quarters or 25% of the credit if purchased in the third or fourth quarter. Vehicles purchased by that manufacturer beyond the phase-out period are no longer eligible for the tax credit.
Two manufacturers have hit the 200,000 qualified vehicle sale limit. A vehicle purchased from Tesla or General Motors, no matter its battery size, will not qualify for the tax credit. As of 2021, Nissan is the next manufacturer expected to hit the 200,000 qualified vehicle limit. However, it is unlikely that the sales of the Nissan Leaf will exceed this threshold by the end of 2021.
How to File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
Although car and motorcycle manufacturers may advertise the electric vehicle tax credit as a discount on the vehicle, it is not a discount to you as the buyer up front. It simply reduces your tax liability for the year in which you purchase the qualified vehicle. You must still pay the full cost of the vehicle as negotiated at the time of sale.
However, when you file your taxes for the year, you will fill out Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit to receive your tax credit and direct dollar-for-dollar reduction of your taxes owed. Because it is a non-refundable tax credit, you will only receive a credit to the point that your tax liability is reduced to zero. You will not receive the balance back beyond that point. Once you have completed the form, you can submit it along with your taxes when you file them for the year.
Download Form 8936 Here
You can download all versions of the Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit here on the IRS website.
Are Electric Vehicle Tax Credits Available in 2021?
Yes, electric vehicle tax credits for both four-wheeled and two-wheeled vehicles are available in 2021. You must purchase an eligible fully electric motorcycle or car or plug-in hybrid model car by a qualified manufacturer. Tesla and General Motors vehicles do not qualify for 2021.
Be aware: Tax laws are subject to change regarding eligibility for electric vehicle tax credits.
How Many Times Can You Claim the Electric Vehicle Tax Credit?
You can only claim the credit for each qualifying vehicle once. The tax credit must be claimed in the year in which you purchased and began to use your new fully electric or plug-in hybrid model car or fully electric two-wheeled vehicle.
However, if you purchase a separate qualified fully electric or plug-in hybrid vehicle in another year, or two separate cars in same year, you can still claim the tax credit for the other vehicle. It is not a once-in-a-lifetime tax credit in that sense.
Is There an Income Limit for Claiming the Electric Vehicle Tax Credit?
In August 2021, the U.S. Senate approved a non-binding resolution to set a $40,000 limit on the price of electric cars eligible for the current tax credit. It would also limit the income of buyers to $100,000 or less. However, the measure must still make it through the House of Representatives before it is passed into law.
Additionally, there are other active efforts to reform federal EV incentives. The most promising effort is the Clean Energy for America Act, which would increase the maximum tax credit to $12,500 and remove the 200,000 qualified vehicle limit. This would allow Tesla and General Motor vehicles to qualify once again. It also proposes a price limit on electric vehicles, but a higher one than the Senate passed, at $80,000.