How Does the Federal Tax Credit for Electric Cars Work?

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Looking to lower your fuel costs or dispense with carbon emissions with your new vehicle altogether? Consider shopping for an EV near Scranton. Many automakers, like Volkswagen, continue to produce electric cars and EVs and will continue doing so for many years to come.

 

 

Even better, your purchase may qualify for a $7,500 federal tax credit when you buy a Volkswagen ID.4! Find out how the electric car tax credit works with our handy guide.

How Does the Federal Tax Credit for Electric Cars Work for Your Purchase?

The federal tax credit starts at a minimum of $2,500 and can go up to $7,500, depending on the car’s traction battery capacity and gross vehicle weight rating. This is yet another reason to invest in a Volkswagen EV to put in your Lehighton garage.

Which Volkswagen Are Applicable for the Full Electric Car Tax Credit?

A qualifying EV must meet the following criteria:

  • Draws propulsion using a traction battery that has at least 5 kilowatt-hours (kWh) of capacity
  • Uses an external source of energy to recharge the battery
  • Has a gross vehicle weight rating (GVWR) of up to 14,000 pounds
  • Meets specified emission standards
  • Has to be mostly driven in the United States
  • The MSRP can’t exceed $80,000 for vans, SUVs, and pickup trucks
  • The MSRP can’t exceed $55,000 for other vehicles

Use this tool for an estimate of the credit for the model that you’re considering for your Bloomsburg commutes.

Starting in 2023, you can get up to $4,000 for a tax credit on used EVs, limited to 30% of the vehicle’s purchase price with at least 7 kWh of battery capacity. The overall goal of this tax credit is to lower emissions and reduce our dependence on fossil fuels for our vehicle’s propulsion.

Even better news comes for shoppers in 2024. Rather than take the tax credit with their income tax returns filed every year, the tax credit transfers to the dealer. Meaning, the dealer would reduce the price of the EV by $7,500 at the time you make the purchase. You can benefit from a lower loan amount and better financing terms because your overall loan will be $7,500 lower.

Am I Eligible for the Federal Electric Car Tax Credit?

You’ve checked that the model you want, like a VW ID.4, qualifies for this tax credit. Now, you’ll need to see if the credit can be applied to your taxes. First, remember that this tax credit is only available if you buy the vehicle. If you lease an EV instead, the tax credit will go to the lending institution instead as they technically own it.

Once you know you’re set on buying an EV, you’ll need to consider how much you will owe in income tax for that year. This amount is key because it caps how much of the tax credit you can get. For example, if you buy an electric model eligible for the full $7,500 and you owe $3,000 in income tax, then your $3,000 tax bill will be reduced to zero. The tax credit will reduce your tax bill as opposed to giving you money as a refund.

However, in 2024 that will change. Rather than reducing your tax bill, the rebate will reduce the actual price of EVs when you purchase one at the time of the sale.

How Long Will the Federal Electric Car Tax Credit Be Available?

When the Inflation Reduction Act of 2022 was passed in the United States, Americans became eligible for these tax credits until 2032. So, look to save as much as $7,500 on your purchase of new EVs when you shop for one starting in 2024! With more and more public charging stations coming online in and around Larksville, you won’t have to worry about range anxiety in our area!

Save on a Volkswagen EV Today in Larksville!

Now you understand the answer to the question, “How does the federal tax credit for electric cars work?” Ready for the next steps? Contact us or call 570-515-0500 to schedule a test drive with our team. We’re happy to help in any way we can!


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