To help get plug-in vehicles onto the streets, federal and local governments have introduced incentives than can shave thousands of dollars off the cost of purchasing or leasing one.
The incentives come in two forms: tax credits and rebates.
Anyone purchasing a new plug-in hybrid or battery electric car — collectively called plug-in electric vehicles or PEVs — is eligible for a federal tax credit.
State and local credits and rebates, however, aren’t available everywhere. Information about them can be spotty, and because programs are susceptible to politics and budgetary issues, funding can be reduced or eliminated without warning.
Well-trained salespeople are usually up to date on plug-in vehicle incentives. But not all dealerships that sell plug-in electric vehicles have knowledgeable staffers. That complaint was raised repeatedly by consumers in a 2014 PEV shopping study conducted by the University of California, Davis.
Here’s what you need to know to make sense of it all.
The federal program is fairly simple. The government offers an income tax credit of up to $7,500 to the first legal, registered owner of a qualifying new plug-in electric vehicle in the tax year in which it was purchased.
The credit is determined by the vehicle’s battery size and all-electric range, so most battery-electric vehicles, or BEVs, qualify for the maximum of $7,500. Plug-in hybrids, or PHEVs, almost always qualify for less because they typically have smaller batteries with less all-electric range. As of publication, the maximum credits available for various plug-in hybrids range from a low of $3,793 for the BMW i8 to a high of $7,500 for the Chevrolet Volt. (Tax credits for fuel cell vehicles can be more — the Toyota Mirai currently rates a credit of up to $8,000.)
And because the amount is a credit against taxes owed and not a flat rebate, your total federal income tax bill determines the final value.
For example, if you purchase a plug-in electric vehicle with a maximum federal tax credit of $7,500 and your total income tax bill that year is $8,000, you’ll get the full benefit of the $7,500 credit (and owe $500). But if your tax bill is $6,200, you’ll be able to claim only a $6,200 credit. The government won’t send you a check for the remaining $1,300 and you can’t carry it over to the next year.
If you lease, the credit goes to the leasing company. But to encourage people to lease plug-in electric vehicles, leasing companies, which are usually owned by the automakers, often apply the rebate to the lease. That reduces your monthly payments and sometimes cuts the down payment that many leases require.
You can find the maximum credit for models you’re considering on the federal Energy Department’s tax credits site.
When does it expire?
The full-value tax credits expire for each plug-in electric vehicle manufacturer when it has sold 200,000 qualifying cars. Then there’s a one-year period of quarterly reductions until that manufacturer’s plug-in vehicles no longer qualify for any federal assistance.
None of the automakers are close to hitting the limit. General Motors, which sells two plug-in hybrids and one battery-electric vehicle, became the first to cross the 100,000 mark earlier this year. Tesla Motors has sold close to 100,000 between its Model S and Model X battery-electric vehicles. It could also be the first to hit the limit as it ramps up production of its upcoming Model 3, for which it has taken nearly 400,000 advance reservations.
This could change, but as of now, only 12 states offer financial incentives to purchasers and lessees of plug-in vehicles. Five states that used to offer incentives — Georgia, Illinois, Oregon, Tennessee and Texas — have canceled their programs. Several states have also added special fees for battery-electric vehicle owners to help offset the loss of gas tax revenue used to maintain state highways.
The good news for plug-in electric vehicle shoppers is that where they are available, state and local incentives are in addition to the federal tax credit. Here’s a list of the 12 states and the maximum incentives they currently offer (actual incentive may be less, depending on price of car):
States' incentives for plug-in vehicles
|California||$2,500 rebates for battery-electric vehicles and $1,500 for plug-in hybrids, but special provisions for low-income purchasers and lessees can increase a rebate by up to $1,500. Fuel-cell cars may be eligible for a $5,000 rebate.|
|Colorado||$5,000 tax credit; lessees get up to $2,500|
|Louisiana||$1,500 tax credit (rises to $3,000 in 2018)|
|Maryland||$3,000 tax credit (expiring June 30, 2017)|
|New York||$2,000 rebate|
|Rhode Island||$2,500 rebate|
|Utah||$1,500 tax credit|
|West Virginia||$7,500 tax credit|
Unless otherwise noted, the programs are funded on a calendar- or fiscal-year basis and may run out of money.
Some states also provide cash rebates or tax credits for installing home electric-vehicle charging stations. Others provide incentives such as sales tax and license fee reductions, free parking, toll-road fee waivers and single-occupant use of carpool lanes. In a few states, communities and public utility companies offer cash incentives.
The most up-to-date lists of frequently changing state and local plug-in electric vehicle incentives are maintained by the National Conference of State Legislatures and the nonprofit advocacy organization Plug In America.
John O’Dell is a longtime automotive writer who has covered alternative-fuel cars for the Los Angeles Times and Edmunds.com. He now runs the website The Green Car Guy. Email: firstname.lastname@example.org.
Updated Jan. 26, 2017.