Consumer Tax Incentives
What are the incentives for high-efficiency light-duty vehicles?
Tax credits were available for hybrid-electric, diesel, fuel cell, and plug-in electric vehicles.
Credits in the Energy Policy Act of 2005
EPAct 2005 introduced tax credits for hybrid-electric, lean-burn (largely diesel), and fuel cell vehicles. The credits were determined by vehicle weight, technology, and fuel economy compared to base year models. Qualifying vehicles must also meet tailpipe emission criteria.
These credits were available for vehicles placed in service starting January 1, 2006. For hybrid and diesel vehicles made by each manufacturer, credits for a given manufacturer’s vehicles will be phased out over a fifteen-month period after that manufacturer has sold 60,000 eligible vehicles. For vehicles made by manufacturers that have not reached the end of the phase-out, the credits were available for vehicles placed in service no later than December 31, 2010.
In model year 2009 for the first time, certain light-duty diesel vehicles qualified for tax credits as lean-burn vehicles. Newer emissions control technologies allowed diesels to meet NOx and particulate matter emissions requirements for the credit. BMW, Mercedes and Volkswagen offered diesels eligible for tax credits in model year 2009.
Read an IRS summary of the credit here.
Plug-In Electric Vehicle Credits
The Emergency Economic Stabilization Act of 2008 added to the tax credits introduced in EPAct 2005 a credit for plug-in vehicles, both hybrid- and battery-electric. The American Recovery and Reinvestment Tax Act of 2009 (the stimulus package) expanded that credit. The credit was available for a new plug-in electric drive vehicle having a battery capacity of at least 4 kilowatt hours, which brings a credit of $2,500. Each kilowatt hour of battery above this added $417 to the credit, up to a maximum of $7,500 for vehicles up to 14,000 lbs gross vehicle weight. As in EPAct 2005, the amount of the credits begins a phase-out after a manufacturer exceeds a vehicle sales limit, in this case 200,000 vehicles.
A separate credit is available for low speed and 2- and 3-wheel plug-in electric vehicles, in the amount of 10 percent of vehicle price, up to $2,500. Also, a credit for plug-in conversion kits, allowing the conversion of hybrid-electrics to plug-in hybrids, in the amount of 10 percent of the cost of the kit.
Who is eligible for the tax credits?
Buyers and lessors of qualifying vehicles are eligible. For purchases by tax-exempt entities, however, it is the seller who is eligible for the tax credit. Under the American Recovery and Reinvestment Tax Act of 2009, both the credits under EPAct 2005 and the plug-in electric drive credits can be claimed as credits against the Alternative Minimum Tax.
What is the process for determining the amount of credit for a given model?
The mix of technologies, vehicle weight class, fuel economy, emissions performance, and battery capacity set forth in the legislative language creates a complex picture of which vehicles qualify, and the amount of credit for a given vehicle. The IRS issued guidance in January 2006 setting out a process to establish the value of the credit for a given model. Manufacturers submit to the IRS a certification that the vehicle qualifies for a credit of a certain amount. Once the IRS has acknowledged that certification, purchasers may rely upon the manufacturer's information in claiming the credit. Similarly, manufacturers submit and IRS acknowledges quarterly sales reports, which determine where each manufacturer stands with respect to the phase-out period for the credits.
How long are these incentives available?
The hybrid, lean burn, and fuel cell credits were available from 2006 through 2010. Some manufacturers’ vehicles no longer qualify for credits, due to the 60,000 vehicle limit per manufacturer. Once a manufacturer sells 60,000 qualifying vehicles, the full credits remain available for the next calendar quarter following the quarter in which the 60,000th vehicle was sold. For the subsequent two quarters, the incentive is 50 percent of the full amount. For the two quarters after that, the incentive is 25 percent of the full amount. After four quarters (one year) of reduced credits, the incentives are no longer available for vehicles sold by that manufacturer. Credits for plug-in electric drive vehicles have no end date; the phase-out that begins when a manufacturers reaches 200,000 vehicles sold follows the schedule just described. For conversion kits and for low speed and 2- and 3-wheel plug-in electric vehicles, credits are available through the end of 2011.
Which certified manufacturers have reached the 60,000 limit?
Both Toyota and Honda hybrid tax credits are now entirely phased-out.
Click here to access original IRS guidance on qualifying passenger vehicles.
Information on necessary forms is available below.
Where can I learn more about qualifying vehicles and/or fuel economy?
At present, there are no regular plug-in vehicles on the market, however the Chevy Volt and a plug-in Prius should be available in a year or less, and several other manufacturers have vehicles in the works - both plug-in hybrid-electric vehicles and battery electrics.
- American Council for an Energy-Efficient Economy
- ACEEE's GreenerCars.org