If you own either a qualified all electric or hybrid, plug-in motor vehicle (which may either be a passenger vehicle or a light truck) you may be eligible to receive the “Plug-In Electric Drive Motor Vehicle Credit” tax credit reported on Form 8936. The credit ranges from $2,500, to $7,500, depending on battery capacity and manufacturer caps.
- Battery Size. An electric vehicle's battery size determines the amount of credit you may receive. Typically, the larger the battery, the larger the credit. For some models, the credit amount can fall well below $7,500.
In 2021, the amount of electric car tax credit you're eligible for depends on the following conditions:
So how can you determine what you’d qualify for in this area?
The IRS uses the following equation to determine the amount of credit:
(A) $2,500 for a minimum of a 5kWh battery pack
(B) + $417 for all battery packs
(C) + $417 per kWh of a battery pack greater than 5 kWh
A + B + C = X (Your federal tax credit amount)
Keep in mind the maximum amount you can receive for this specific tax credit is $7,500.
- Manufacturer cap. When a manufacturer sells 200,000 total qualifying vehicles, no matter the model, the credit begins to reduce, or phase out.
Phase 1: After an automaker reaches the 200,000-car-threshold the credit—the credit is cut in half, from $7,500, to $3,750 from the second quarter until the end of the third quarter.
Phase 2: For the next two quarters, it's cut in half again to $1,875, until the allowable credit is $0 one full year later after the phase-out begins.
Purchases of Tesla and General Motors vehicles are no longer eligible for the credit.
You can find out what the maximum amount of the credit for eligible cars in 2021 is here: Federal Tax Credits for Electric and Plug-in Hybrid Cars