While the number of plug-in electric vehicles is still small compared with other cars on the road, it’s growing — especially in certain parts of the country. If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. (Depending on where you live, there may also be state tax breaks and other incentives.)
However, the federal tax credit is subject to a complex phaseout rule that may reduce or eliminate the tax break based on how many sales are made by a given manufacturer. The vehicles of two manufacturers (GM and Tesla) have already begun to be phased out, which means they now qualify for only a partial tax credit and ultimately by Q1 2020 both vehicles will no longer qualify for the credit at all.
A qualifying vehicle can be either fully electric or a plug-in electric-gasoline hybrid. In addition, the vehicle must be purchased rather than leased, because the credit for a leased vehicle belongs to the manufacturer.
The credit begins phasing out for a manufacturer over four calendar quarters once it sells more than 200,000 qualifying vehicles for use in the United States, which by the end of 2018 happened for GM and Tesla.
Despite the phaseout kicking in for GM and Tesla vehicles, there are still many other EVs that qualify for the tax credit on the market if you’re interested in purchasing one.