Tax Breaks for Qualified Plug-in Electric Vehicles

Current tax law provides for two separate credits for qualified plug-in electric vehicles.  One was passed in 2008 to provide a tax credit for the purchase of electric cars, and another was passed in 2009 to provide credit for low-speed or two- or three-wheeled vehicles commonly referred to as neighborhood vehicles.  The way the vehicle definitions for the two credits were written, it is possible that some vehicles may actually qualify for both credits but the IRS has announced that only one of the credits can be applied to any single vehicle.  The following is a summary of the requirements for both.

Four-Wheeled Electric Vehicle Credit (Code Sec. 30D) – For qualified plug-in electric drive motor vehicles placed in service in 2009, the credit is the sum of $2,500, plus an additional $417 for each kilowatt hour of traction battery capacity in excess of four kilowatt hours (Code Sec. 30D(a)(2)).  Although most individual taxpayers will view that as an electric car credit, the credit actually applies to any four-wheeled electric vehicle, and the maximum credit is based on the vehicle’s gross vehicle weight rating (GVWR); see table.



For new qualified plug-in electric drive motor vehicles placed in service in after 2009, the weight-based limitation on the maximum credit is removed, and the credit is made up of a base amount of $2,500 plus, for a vehicle drawing propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus $417 per kilowatt hour of capacity in excess of 5 kilowatt hours.  However, the credit is subject to phase-out when a manufacturer has sold 200,000 vehicles after 2009.

Low-Speed, Motorcycle & Three-Wheeled Vehicle Credit (Code Sec. 30) – A credit equal to 10% of the cost, maximum credit is $2,500 per vehicle, of electric drive low-speed vehicles, motorcycles, and three-wheeled vehicles purchased after February 17, 2009 and before 2012 is allowed.  This credit is not allowed if the vehicle also qualifies for the four-wheeled electric vehicle credit.  A qualifying vehicle must be either a:

• Low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours.  This would include low-speed, four-wheeled vehicles manufactured primarily for use on public streets, roads and highways (neighborhood electric vehicles) which may also qualify for the four-wheeled vehicle credit.  In that case, this credit will not apply to that vehicle.

• Two- or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours.

Off-Road Vehicles & Golf Carts - Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for either credit.

Purchased or Leased – For both credits, the qualified vehicle may be either purchased or leased by the taxpayer (but not for resale).  Original use of the vehicle must begin with the taxpayer.

Certification – The IRS is working on guidance on certification procedures for both of these credits.

---