Federal Incentive for EV Purchase or Lease
We are not CPAs. It is always a good idea to check the foregoing with your accountant. This is for general informational purposes only.
Incentive levels and rules change all the time. This page was last updated on March 10, 2020. We will keep up as best we can.
The US Department of Energy offers EV purchase incentives. Exclusions apply, so you’ll want to verify their availability before completing your purchase.
Federal Tax Credit Description
The Federal government offers a maximum incentive of $7,500 in the form of a tax credit which reduces the total amount of income tax you owe. This is a dollar for dollar tax credit – not a tax deduction. For example, if you owe $15,000 in Federal income taxes, your tax liability would be reduced to $7,500 ($15,000 – $7,500).
This assumes you owe at least $7,500 in federal income tax (over and above FICA). If your tax liability is less than $7,500 you receive a tax credit to a maximum of your tax liability. Therefore, if your Federal tax liability is $5,000 then your maximum incentive is $5,000. You will not receive a refund for the balance, nor is there a carry-forward.
There is a requirement that the EV has a battery pack that is a minimum of 4kWh (pretty small). The $7500 is a maximum credit. Cars with smaller battery packs will receive a smaller credit. This links to the US Department of Energy website that has a list of which vehicles qualify for which level of credit.
These credits expire on an individual manufacturer basis based on reaching a threshold of 200,000 vehicles sold.
Phase-out for manufacturers exceeding the threshold
After the 200,000 vehicle threshold is reached, the full benefit remains for the remainder of the quarter and the subsequent quarter relative to when the threshold was crossed. The maximum benefit is reduced by half ($3750) for the following six months and reduced by half again ($1875) for the six months following the initial reduction. Then it expires.
For example, Tesla crossed the threshold in July 2018. The full credit remained through December 2018. The credit was halved ($3750) from January 2019 through June 2019. It was halved again ($1875) from July through December 2019. As of January 1, 2020, the tax credit for Tesla expired. If a vehicle is eligible for a lower amount than the max $7500, the same ratio of decline applies.
The only other manufacturer that currently has EV sales in excess of 200,000 units is General Motors. It is in the final quarter of the phase-out period and the tax credit for GM will expire for General Motors on March 31, 2020.
For leased vehicles, the incentive goes to the manufacturer. The dealer has some discretion here. It usually gets passed in whole or in part to the consumer. Ask the dealer to review the math of the lease.
This tax credit is associated with the car and not the person. In other words, it can be used for as many eligible EVs you buy as long as it is in effect.
This incentive does not apply to used vehicles.
There is no incentive for fuel-cell vehicles. It expired in 2017.
Charging Station Incentives
There is a federal tax credit for residential charging station purchase and installation of 30% of the cost with a cap of $1,000. This credit is good through 2020. The bill that authorized the extension of this credit, which had expired at the end of 2016, made the extension retroactive. If you have already filed your 2017/2018 return, you can now file for this credit.
You may ask if a retroactive incentive motivates consumer behavior. Well, it doesn’t. It is a symptom of legislative stasis. It is made retroactive out of a sense of fairness.
This is the IRS form 8936 for the EV purchase tax credit.
This is the IRS form 8911 for charging stations.
State of Connecticut EV Purchase or Lease Incentives
EV purchase incentives are available from the State of Connecticut but exclusions apply here, as well, so you’ll want to verify their availability before completing your purchase.
CHEAPR Program Description
The Connecticut Department of Energy and Environmental Protection created a program referred to as the Connecticut Hydrogen and Electric Automobile Purchase Rebate Program (CHEAPR). The program offers a maximum incentive of $5,000* for eligible battery electric vehicles (BEVs), Plug-in hybrid vehicles (PHEVs) and fuel-cell electric vehicles (FCEV). The incentive can be credited to the purchase or sale agreement or be sent in the form of a check. In other words, this is a rebate, not a tax credit. A rebate is more consumer-friendly in that it is immediate and will benefit those who do not have enough taxable income to qualify for the full federal credit.
The program advertises that rebates can be as high as $5,000. This is technically true, but misleading. That amount is only available for fuel-cell vehicles. There are only 3 of these registered in the state. CHEAPR has not handed out a single rebate for this type of vehicle. There is only 1 public hydrogen refueling station. They obviously feel it is important to support this technology but as a practical matter, the BEV and PHEV rebates described below are what matter and those incentives are lower.
CHEAPR is electronically integrated with many dealers to facilitate applying the rebate directly to the purchase. CHEAPR also has a process to work with Tesla for qualifying vehicles (not many at this point). When you go out of state to pick up your vehicle, the people at the Tesla delivery center know the drill and will guide you through the process.
Current incentives* are as follows:
Eligible BEVs – $1,500 for driving range of 200 miles or greater
Eligible BEVs – $500 for driving range less than 200 miles
PHEVs – $500 any PHEV
FCEVs – $5,000 any FCEV
Each individual with a valid CT driver’s license is entitled to one rebate (lifetime). (If you co-sign for a vehicle, the cap for that single vehicle will count for both of you.)
It’s important to note that as of October 15, 2019, the incentive only applies to BEV and PHEV vehicles with an MSRP of $42,000 or less and $60,000 or less for FCEVs.
You can learn more about how this change affects your possible rebate and the negative effect it has on EV adoption in Connecticut from this EV Club of Connecticut blog post.
The incentive applies to new vehicle purchases and lease programs and is available on a “first-come, first-served” basis in case funding gets depleted. CHEAPR is currently funded at $3 million per year through 2025.
Used vehicles are currently not part of this program.
*You’ll want to check the CHEAPR website to verify currently available incentives and restrictions. They publish a list of eligible vehicles.
There is a notice on the CHEAPR website that the current rebate criteria are under review and we expect adjustments at some point in 2020. We also expect an incentive for used EVs. This page will be updated to reflect that information when it is available.
The State of Connecticut also offers a reduced registration fee for BEVs. As of this writing, the biennial fee is $38.00 (plus typical surcharges), but you can verify the fee and learn more at the DMV website. We assume this applies to FCEVs, but the language on the DMV website is general and we still need to verify this.