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Electric Vehicle Tax Credits and Rebates Explained

If you are interested in buying or leasing an EV, here’s what you need to know about federal and state incentives.

The quality of EVs has improved greatly in recent years. And because the cost of lithium-ion batteries has fallen so much, we now have several affordable choices. Federal and state incentives can cut your costs by up to $10,000 on top of the impressive discounts offered through Drive Green with Mass Energy.

With federal, state, and dealer incentives, most of the cars in our program cost much less than the average new car in America.

Federal Tax Credits

What they are now and what they might be in the future

Plug-in electric vehicles qualify for a federal income tax credit of up to $7,500. The full amount of the tax credit depends on the battery size of the vehicle. If you buy the car in one year, you get the credit when you file your 1040 with the Internal Revenue Service (IRS) for that tax year. We say “up to” $7,500 because the credit is limited by your tax liability. If you owe $7,500 or more, you can take the full credit. If you owe less, say $5,000, you can take a credit on what you owe. The IRS will not write you a check.

This tax credit is available to car purchasers only. If you lease a car, the leasing company gets the tax credit. This is why several dealers are offering attractive leasing options. They are passing at least some of the value of the tax credits onto the terms of the lease.

You should know that the federal tax credits are going to be reduced and phased out for each manufacturer when that car company sells 200,000 units in America. As of November 2017, General Motors (which makes the Volt and Bolt), Nissan, and Tesla have each sold over 110,000 cars in the US. No one knows for sure, but it’s likely that the tax credit for their cars will be reduced sometime in 2018. After a carmaker sells 200,000 EVs, the tax credit for that carmaker will be cut in half for 6 months, then cut in half again for 3 months, and then it expires. If you buy or lease before the end of 2017, we are confident the federal tax credits will be at the current values. 

Keep that in mind as you decide on which EV to buy or lease. It's an important consideration if you're waiting a few years to buy or if you prefer to lease now and buy later, with an eye towards getting an EV that is even better than what’s available today. We can expect quality improvements and several more choices by 2020, but it’s anyone’s guess at what an EV will cost then and what federal incentives will be available.

This article on the subject from Green Car Reports is worth reading. And you should read what the IRS has to say as well.

State Rebates

Massachusetts offers rebates of $2,500 for plug-in electric vehicles through the MOR-EV Program. Again, the size of the rebate is tied to the range of the car on the electric battery. Rebates are available to purchasers and to those who lease for at least 36 months.

As a private nonprofit organization, we obviously cannot speak for state government, but we are very confident that the full rebates will be available for some time. In December 2016, Governor Baker announced that $12 million would be allocated to EV rebates.

For more information about these rebates, visit mor-ev.org.