When Do Electric-Car Tax Credits Expire?

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2012 Toyota Prius Plug-In Hybrid - production model

2012 Toyota Prius Plug-In Hybrid - production model

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By now, pretty much anyone who's thinking of buying a plug-in electric car knows the Federal government offers an income-tax credit to help reduce the effective cost.

But are shoppers who wait too long in danger of losing out on these credits?

The short answer is no. Or at least, not if they buy within the next two or three years.

Unlike a purchase rebate, which is basically a check in the mail, an income-tax credit is taken when the buyer files his or her U.S. income tax return for the year in which the electric car was purchased.

Credits range from $2,500 to $7,500 for battery-electric and plug-in hybrid passenger cars, based on the size of the battery pack.

The minimum pack size is 4 kilowatt-hours, and the scale runs from 4 kWh to 16 kWh (or more). For example: 

  • Toyota Prius Plug-In Hybrid: $2,500
  • Ford Fusion Energi & C-Max Energi: $3,750
  • Chevrolet Volt, Nissan Leaf, Tesla Model S, others: $7,500

2013 Nissan Leaf, Nashville area test drive, April 2013

2013 Nissan Leaf, Nashville area test drive, April 2013

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Like the prior program of income-tax credits for purchase of a hybrid-electric car, which ended several years ago, there's a cap on how many cars from each maker qualify for the credits.

But whereas hybrids were capped at 60,000 vehicles per carmaker, plug-in vehicles have a higher cap: 200,000 cars per manufacturer.

That applies to sales in the United States only, and once that number is achieved, the credits start to phase out over a one-year period starting in the second quarter after that total is reached.

For two quarters, the credit is halved; for a third quarter, it is set at 25 percent of the original amount.

And then, it's done.

The relevant rules can be found on the IRS website, including the phaseout:

The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”).

Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

2011 Chevrolet Volt and 2013 Tesla Model S [photo: David Noland]

2011 Chevrolet Volt and 2013 Tesla Model S [photo: David Noland]

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In practice, General Motors is closest to the limit; as of June 30, it had sold 41,313 Volts in the U.S.

Nissan is next, with 29,351 Leafs sold, and then there's Toyota, at just under 17,000 Prius Plug-Ins delivered.

Tesla comes fourth, at an estimated 12,000 Model S electric sport sedans sold, but every other maker is below 10,000 plug-in electric cars delivered.

Plug-in sales will likely continue to rise: 17,500 were sold in 2011, and that tripled to about 53,000 last year.

This year, the number will roughly double again.

But you still have some time before any maker starts to get close to that 200,000 total--so you can safely keep shopping.


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Comments (12)
  1. I always wonder if these generous rebates are partly responsible for the high MSRP's on EVs.

  2. I bought a Toyota Camry Hybrid in 2008 just after the $1000 tax credit phaseout for that model. Toyota lowered the MSRP by $1000, so in my personal experience the answer is yes.

  3. I think you're right, and after a certain point the tax credit is pure profit for the manufacturer, so when it runs out they drop the price to maintain sales. But I also think that point is hard to predict fairly for all makers, so an arbitrary number is chosen to be fairly applicable.

    I won't argue that the credits make manufacturers do something they wouldn't otherwise, but we've seen in the EV market how much of a difference a few grand in sticker price can do for the rate of adoption. The credit lets them increase the economy of scale much faster than the market would allow otherwise, so we can all enjoy greener cars for years to come.

  4. Is 200k vehicles per manufacturer enough to improve battery economies of scale to bring their prices down more than the subsidy? It'd be interesting to see the math on where the battery market _really_ is, but that's an awful lot of proprietary info I believe..

  5. I agree with what Tom Mechanoguy said. But I think the 200k number is there to also allow automakers to recover some of that initial R&D and tooling cost.

    For Volt, 200k unit with $7,500 each would be about $1.5Billion. That amount is approximately what GM spent on the Voltect powertrain R&D and initial tooling (I think $1.2 Billion is the number that news media are throwing around).

    So, if GM would just break even on price - $7,500 per car, it would have recovered its initial cost. That is why I think 200K is the number they use...

  6. The media (a story in Reuters) also has GM quoted as saying that the cost for parts and labor in the Volt is approximately $24K. Priced at $39K that's $15K for development and overhead, which should as you say allow them to get their $1.2B payed off in less than 200K units.

  7. I think that is why GM is willing to discount the Volt by $4k right now to still make enough money on the car to recover the initial cost.

    At current rate, GM should break even before the next gen Volt and it won't hit 200K for another 5-6 years.

  8. The coveted HOV sticker on the other hand will expire sooner. e.g. Only 17 more months in California til Jan 1, 2015 (HOV access varies by state). Don't wait, if you want to drive in the fast lane.

  9. Legislation has been proposed to extend the HOV sticker expiration for pure electric (or natural gas) white sticker is not due to expire until 2020 and plug in hybrid to 2018. I don't see any reason this would not pass. (Unless you are aware that the legislation did not pass.)

  10. I wonder, when will there be so many people in the HOV lane that it isn't any fast?

  11. No brainer. After rebates, GM Card rebate, and tax credits, my Volt cost $27k plus tax and fees. It is projected to saving me $5-6,000 in gas over 5 years, and that's if prices don't rise. It's been flawless so far and I'm averaging 155 MPG. To go 1000 miles, it costs $17. in electricity.

  12. Only if that 1000 miles isn't done as a two day road trip. After the electricity ran out, with a Volt carrying three adults and one child plus a small amount of luggage, gas mileage was ~ 36.5 mpg on the interstate. Not shabby mileage in today's economy, but not stellar either. OTOH, local fuel economy has been great, and since road trips are few and far between, it still saves a lot of money at the pumps.

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