Although the Biden administration's proposal to include $100 Billion in new electric car subsidies was not included in the infrastructure bill currently wending its way through Congress, those who are considering an EV partly due to the tax breaks should not panic.Check out: What is in the Infrastructure Deal that Biden and Senators have agreed to?The latest spending initiative was designed to extend current incentives and allow makers such as Tesla TSLA (+3.27%) and General Motors, GM +0.33%, who ran out of credits to be eligible again. This measure would also have reduced the federal maximum tax credit from $7500 to $7,000.The current program is still in place and you should be aware of all the details if you want to take advantage. Here's what you need to know.Federal tax credit worth $7,500You've probably heard of the federal tax credit, which can be up to $7500, for certain alternative-energy vehicles. This can help lower the cost of fuel-efficient cars, but not in all cases. The 2009 tax credit was approved in a bill. It still applies to newer plug-in electric cars. Here's how it works.The tax credit is not available immediatelyThe bad news is that you will need to pay the government for your purchase.The tax credit is just that, a tax credit. It is not a discount on the car's price as manufacturers often claim it to be. It is a government policy that allows you up to $7500 credit towards federal income taxes. It reduces your tax liability. You will get the full amount of your credit if you are eligible for a refund.Check out: Electric trucks of tomorrowBuyers still have to pay the agreed price for the vehicle (either in cash or as a loan). The credit can be claimed the next time the tax returns are filed. This credit reduces your tax liability. The credit will be refunded if your tax bill exceeds the credit. You can't roll over the credit or any balance to the next tax year.This applies only to new carsNo tax credit is available for purchasing an electric vehicle used, regardless of its efficiency.This does not apply to leased vehiclesThe tax credit will be given to the manufacturer if you lease a new EV. They might offer to reduce your monthly payments by applying the credit. They are not required to do this. This is something you can raise in negotiations.This applies to all EVs, plug-in hybrids, and fuel cellsThe credit is only available to road-going vehicles with a maximum capacity of 4 kilowatt hours or more and that have been charged from an external source. Base credit is $2,500, with $417 per additional kWh. Credits up to $7,500 are not allowed. This applies to both plug-in hybrids and battery-electric vehicles.Here's how the tax credit actually works in practice. The standard 2021 Toyota TM +1.13% Prius hybrid won't qualify as it cannot be plugged in to an external power source. The 2021 Toyota Prius Prime will qualify because it has plug-in capabilities. This credit is worth the first $2,500. It will also be eligible for $2,000 more credits due to its 8.8 kWh battery. The full $7,500 credit is available for the 2021 Toyota RAV4 Prime plug in hybrid. It has a larger 18.1kWh battery.Also, see: Nightfall, midnightcall it whatever you like, black is the new Black in CarsThe $7,500 credit is also available for hydrogen fuel-cell cars such as the Toyota Mirai and Honda HMC, +1.34% Clarity or Hyundai HYMTF. Nexo, +0.36% Nexo. These credit are only available to buyers who live close to one of America's few hydrogen refueling stations. Most of them are located in California.The U.S. Department of Energy keeps a list of eligible vehicles and the amount that buyers can deduct from them.Some electric cars may not be eligible anymoreUpon closer inspection, however, it is possible to see that not all pure electric vehicles are included in the list. What is the reason? They were victims of their success. On the first 200,000 vehicles that a manufacturer builds, full credit will be available. The credit will begin to expire after that number of vehicles is reached. The credit gradually decreases in value, dropping to half and then expiring approximately one year after the 200,000th sale.Two manufacturers have exhausted all their credit. You won't be eligible for the incentive to purchase any Tesla or General Motors vehicle, regardless of how efficient.Nissan NSANY (-2.84%) is the next to lose credit. However, as of writing, 2021 Nissan Leaf buyers can still qualify for full credit.You can get state and local incentives depending on where you liveWhile the federal government is the largest provider of government EV discounts in the United States, there are incentives programs offered by some states and local governments to help car buyers get more efficient vehicles. These include tax credits, rebates and reduced vehicle taxes. Single-occupant carpool-lane access stickers can also be offered.California is the state that offers the greatest support to EV buyers. Through the Clean Vehicle Rebate Project, residents can receive up to $7,000 in state incentives.Alaska, Alabama, West Virginia, and West Virginia do not offer support for individual EV buyers. They do however offer programs that can offset the costs of companies pursuing fuel-efficient fleets.The interactive state-level incentive list is maintained by the Department of Energy, and Plug-In America's interactive map of EV incentives is posted by Plug-In America.Your electric utility might be able to helpIt's not only governments that can help with the cost for a new electric vehicle. Some local electric utilities offer incentives to encourage buyers to buy electric vehicles. After all, they are among those who benefit from the conversion of fuel dollars into electricity dollars.These rebates can be just as important as a rebate. For example, the Omaha Public Power District offers a $2,500 rebate for customers who buy an EV or home charger. They may also be small, such as discounted electric rates to charge an EV during non-peak hours.Do I wait or act now?Federal funding is generous, and many affordable EVs are coming on the market thanks to manufacturers that have large credit banks. You may want to move quickly if you are looking to switch to an EV, or a plug in hybrid.If you are keen to purchase a Tesla, GMs new Hummer EV, or Cadillac Lyriq, then it would be a good idea to wait to see if tax breaks for EVs are offered again by Congress.Compare the Hummer and Ford Lightning to see 2 new electric trucksThe proposal was put on ice in part because it would raise the sunset total for manufacturers to 600,000. This is enough to allow GM and Tesla vehicles to be brought back into qualifying territory. The same proposal would provide a $2,500 incentive to purchase used EVs.The proposal also includes the application of full credit at point of sale. This would allow buyers to take the full credit at the point of sale, rather than waiting for the next tax season in order to claim it as deduction.Although EV sales growth is rapid as a percentage, they only account for 4% of total sales. Two things can happen if manufacturers produce more EVs that the market needs. The prices of electric cars will fall and federal subsidies will be more important to increase sales. You win in either scenario.This story was originally published on KBB.com.
