IRS Explains Tax Breaks For Electric Vehicles

by Mike Godfrey, for LawAndTax-News.com, Washington

28 April 2009

Plug-in electric vehicles using certain types of batteries may qualify for a new tax credit if purchased this year, the Internal Revenue Service (IRS) has announced.

According to the IRS, the Emergency Economic Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA) created two new tax credits for various types of electric vehicles, which may include what are commonly referred to as neighborhood electric vehicles.

ARRA creates a tax credit for low-speed or two or three-wheel electric vehicles, such as motor scooters, purchased after February 17, 2009, and before January 1, 2012. The amount of the credit is 10% of the cost of the vehicle, up to a maximum credit of USD2,500 (GBP1,715).

To qualify, a vehicle must be either a low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours or be a two or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours.

Further to this, the IRS has explained that EESA created a tax credit for vehicles that have at least four wheels and draw propulsion using a rechargeable traction battery with at least four kilowatt hours of capacity. For 2009, the minimum credit is USD2,500 (GBP1,715) and the credit tops out at USD7,500 (GBP5,147) to USD15,000 (GBP10,295), depending on the weight of the vehicle and the capacity of the battery.

During 2009, low-speed, four-wheeled vehicles manufactured primarily for use on public streets, roads and highways (neighborhood electric vehicles) may qualify both for the EESA credit and, if purchased after February 17, 2009, for the ARRA credit for low-speed electric vehicles.

A taxpayer may not claim both credits for the same vehicle. Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for either credit.

The IRS is currently working on guidance regarding certification procedures for both of these credits.

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