Avoid These Mistakes When Applying for EV Tax Credits

Getting EV tax credits on a new or used vehicle can help you save big money when buying a car in 2024 (and since your auto insurance costs may increase, it’s good to save wherever you can). But make sure you understand the rules and limits before you start shopping.

Here are five mistakes to avoid when buying a car with EV tax credits.

1. Not checking the income limits for EV tax credits

Before you start car shopping, before you start wondering if the car of your dreams will qualify for EV tax credits, make sure you qualify for EV tax credits. That’s right: the IRS has income limits for who can get EV tax credits. If you make too much money? No tax credit for you.

Here’s the maximum amount of modified adjusted gross income (AGI) to qualify:

For new EV tax credits, your income must be:

  • $300,000 or less for married couples filing jointly
  • $225,000 or less for heads of households
  • $150,000 for all other filers

For used EV tax credits, your income must be:

  • $150,000 or less for married filing jointly or a surviving spouse
  • $112,500 or less for heads of households
  • $75,000 or less for all other filers

Fortunately there is flexibility on this rule: you can qualify based on last year’s or this year’s income — whichever is lower. But if your modified AGI ends up being too high when you file taxes, you will have to repay the IRS for the tax credit. Don’t get stuck with an extra $7,500 tax bill!

2. Assuming that every new EV gets $7,500 of tax credits

The new EV tax credits of $7,500 got a lot of headlines in the media, but very few new vehicles qualify for that full amount. As of March 1, 2024, only six auto brands offer vehicles that can get the full $7,500 credit:

  • Cadillac
  • Chevrolet
  • Chrysler
  • Ford
  • Tesla
  • Volkswagen

And not all of these companies’ car models will get the full $7,500, either; some car companies have EVs that get only $3,750 of credits. To see the full list, check out FuelEconomy.gov.

3. Ignoring used cars

If new EV tax credits don’t seem like such a good deal anymore, you’re in luck: used EV tax credits might give you an even bigger discount. That’s because pre-owned EV tax credits add up to 30% off the sale price, up to $4,000. And you must choose a used car with a sale price of $25,000 or less.

Are you concerned about the limited selection of cars that offer new EV tax credits? Want to choose from a wider selection of foreign cars, like Toyota and Nissan? Good news: the used EV tax credit is open to a much longer list of auto brands, makes and models of electric vehicles, plug-in hybrids, or fuel cell vehicles.

Along with the “new tax credit” companies listed above, used EV tax credits let you choose from auto brands including:

  • Audi
  • BMW
  • Honda
  • Hyundai
  • Jeep
  • Kia
  • Lexus
  • Lincoln
  • Mercedes-Benz
  • Mitsubishi
  • Nissan
  • Polestar Automotive
  • Porsche
  • Rivian
  • Subaru
  • Toyota
  • Volvo

See the full list of qualifying used vehicles at FuelEconomy.gov.

4. Forgetting about plug-in hybrids

Don’t assume that the only way to get an EV tax credit is buying a fully electric vehicle. It’s understandable that some people might have range anxiety about EV batteries, especially if you can’t charge an EV at home. You don’t want to spend tens of thousands of dollars on a car, and then discover that you can’t fuel it.

Fortunately, there is a solution: plug-in hybrid electric vehicles, or PHEVs. I drive a plug-in hybrid, a 2017 Toyota Prius Prime, and I love it. It runs on gas and electricity. I can drive in silent, electric spaceship mode for 22 miles per day, as long as I remember to plug the car into my garage outlet overnight. Or I can just go to a gas station and fuel up on petroleum products; I get about 100 miles per gallon.

My 2017 Toyota Prius Prime plug-in hybrid, if I bought it today, would qualify for used EV tax credits. I wish I could’ve gotten that $4,000 discount! I really believe that plug-in hybrids can be a great solution for anyone who’s in the market to buy a car in 2024. These EV tax credits can give you a big discount on a used (or new) plug-in hybrid. But be prepared for higher car insurance costs than you’d pay on a typical gas-powered car.

5. Failing to file IRS Form 8936

The car dealership is where you actually receive the cost savings from your EV tax credits. Car dealerships know which models qualify for which credits. Dealers are required to register with the IRS and make sure everything’s done properly.

On the day you buy your EV, the dealership will have you sign a form to agree to “transfer” your tax credit to the dealership, and the dealership will give you an immediate discount for the value of the tax credit. So if you buy a $20,000 used EV that gets a $4,000 credit, your car’s sale price will actually be $16,000. The dealer will give you a “time-of-sale” report with all the details, and then you have to file IRS Form 8936 with your taxes.

Bottom line

There are good deals on electric vehicles and plug-in hybrids in 2024. EV tax credits can reduce your cost of car ownership by knocking thousands of dollars off the sale price. Just be prepared to shop around for car insurance before you shop for cars.

This article was originally published by a www.fool.com . Read the Original article here. .